WASHINGTON, D.C. — The Federal Reserve announced Wednesday that it is cutting its benchmark interest rate by a quarter of a percentage point, marking the second rate reduction this year as the U.S. economy sends conflicting signals of weakening job growth, persistent inflation, and booming technology investments.
The move, expected to offer some relief to borrowers, comes amid mounting economic uncertainty. While the labor market shows signs of cooling and inflation remains stubbornly above the Fed’s 2% target, major stock indexes continue to surge, primarily driven by artificial intelligence (AI) investments that have lifted the market to record highs.
Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET to discuss the central bank’s decision.
A Divided Economic Landscape
According to the U.S. Bureau of Labor Statistics, consumer prices rose from 2.9% to 3% in September, the highest level since January. At the same time, unemployment has edged up to 4.3%, and it now takes job seekers an average of six months to find work, a sign of one of the weakest labor markets in years.
Adding to the challenge, the ongoing federal government shutdown, now in its fourth week, has disrupted the flow of crucial economic data, leaving policymakers partially “in the dark.”
“The Fed’s task is further complicated,” economists at BNP Paribas wrote this week. “Without updated labor and spending data, there’s little visibility into how the economy is actually performing.”
Powell: “No Risk-Free Path”
Fed Chair Powell acknowledged the delicate balance the central bank faces, noting that economic conditions have forced officials to navigate between slowing employment and persistent inflation.
“There is no risk-free path for policy as we manage the tension between our employment and inflation goals,” Powell said earlier this month.
Traditionally, the Fed lowers rates to stimulate spending and investment during slowdowns and raises them to curb inflation. But the current mix of soft hiring and steady price increases has left policymakers with limited options.
AI Boom Masks Economic Weakness
Despite broader economic challenges, stock markets have surged to new highs. The tech sector, and particularly AI-related investments, continues to dominate Wall Street. On Wednesday, Nvidia became the first company ever valued at $5 trillion, fueled by investor enthusiasm over AI’s long-term potential.
Economists warn, however, that the divergence between market optimism and real-world job data could signal instability ahead.
“Either economic growth softens to match the weak labor market, or employment rebounds to match the strength of economic growth,” said Federal Reserve Governor Christopher Waller, a Trump appointee and potential successor to Powell.
Tariffs, Inflation, and Caution Ahead
Many analysts attribute ongoing price pressures to President Donald Trump’s renewed tariffs, which have sharply raised costs on imports.
“The tariffs are the biggest tax increase since the late 1960s,” said Luke Tilley, chief economist at Wilmington Trust.
Meanwhile, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index, remains above the 2% benchmark, suggesting that inflation may linger despite recent policy adjustments.
Some experts, however, believe the inflation threat will fade as consumers grow more cautious.
“Labor market slack continues to build, and inflation will likely cool as households reduce spending,” noted Neil Dutta, head of economics at Renaissance Macro Research.
What Comes Next
The Fed’s next policy meeting is scheduled for December 10, when officials will decide whether further rate cuts are necessary to stabilize growth.
As the central bank continues its balancing act between inflation control and employment recovery, investors remain divided on whether the U.S. economy is headed for a soft landing or something far more turbulent.
By the Midtown Times, Source: Adapted from reporting by NBC News.
