--- title: "Why the Federal Reserve Won't Hesitate to Cut Interest Rates Even if Inflation Doesn't Meet Expectations?" type: "News" locale: "zh-HK" url: "https://longbridge.com/zh-HK/news/262839824.md" description: "Despite the U.S. inflation rate reaching 3% in September, far exceeding the Federal Reserve's target of 2%, the market generally expects the Federal Reserve to cut interest rates as scheduled. Economists point out that the current benchmark interest rate of 4%-4.25% is suppressing economic growth, making a policy shift imperative. The Federal Reserve is more focused on the employment market situation, and a moderate interest rate cut to support the labor market has become an important consideration. In addition, the impact of tariff policies on inflation is mild, and inflationary pressures are considered temporary" datetime: "2025-10-27T08:10:16.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/262839824.md) - [en](https://longbridge.com/en/news/262839824.md) - [zh-HK](https://longbridge.com/zh-HK/news/262839824.md) --- > 支持的語言: [简体中文](https://longbridge.com/zh-CN/news/262839824.md) | [English](https://longbridge.com/en/news/262839824.md) # Why the Federal Reserve Won't Hesitate to Cut Interest Rates Even if Inflation Doesn't Meet Expectations? Despite the U.S. inflation rate remaining as high as 3% in September, well above the Federal Reserve's target of 2%, the market almost universally believes that the Federal Reserve will lower interest rates as scheduled next week. What is the reason behind this? The U.S. inflation rate has not fallen below the target level for four and a half years since January 2021. Why does the Federal Reserve choose to lower interest rates at this time? The Federal Reserve will announce its interest rate decision at 2:00 AM Beijing time on Thursday, with Chairman Powell holding a press conference at 2:30 AM. As with all Federal Reserve decisions, the answer is complex but can be analyzed from the following aspects. ## 1\. Current interest rate levels suppress economic growth, and a policy shift is imperative Economists point out that **the key premise for lowering interest rates is that the Federal Reserve believes the current benchmark interest rate of 4%-4.25% is high and is effectively dragging down the U.S. economy.** Although officials still debate the extent of the economic slowdown, this core judgment has reached a consensus. Against this backdrop, the Federal Reserve's policy thinking has undergone a significant shift. **Powell and the majority of the 12 voting members of the interest rate decision committee are now more concerned about the state of the labor market rather than inflation issues.** A weak labor market means the Federal Reserve is unwilling to let high interest rates continue to suppress the economy—it's like putting stones in the pockets of someone swimming in clothes, which only exacerbates the predicament. Therefore, a moderate interest rate cut to support the labor market has become an important consideration for policy adjustment. ## 2\. Weak labor market exceeds expectations, risk prevention priority rises A major variable in the U.S. economy this year is the broad tariff policy implemented by the Trump administration, which poses a typical "supply shock" for the Federal Reserve—such shocks (like tariffs or the oil embargo of the 1970s) can both push up prices and slow down economic growth. Since the beginning of the year, the Federal Reserve has been focused on the dual risks of inflation and growth, with inflation once seen as a more severe challenge. Economists have continuously warned that tariffs could trigger a surge in inflation. However, the actual situation is that the inflationary push from tariffs has been relatively mild. Although the inflation rate in September still reached 3%, it is better than policymakers' worst expectations. **Federal Reserve officials believe that the inflationary pressure brought by tariffs is temporary and will gradually dissipate, with inflation expected to return to the 2% target, even if inflation may temporarily exceed expectations in the short term, it is unlikely to be sustained.** In contrast to the controllable situation of inflation, **the weakness of the U.S. labor market has far exceeded the Federal Reserve's expectations at the beginning of the year.** A series of data revisions over the summer show that private sector job growth has nearly stalled: in the three months ending in August, the economy added an average of only 29,000 net jobs per month, while the average addition in the last three months of last year was as high as 209,000. "Job growth has clearly stagnated," said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Company, in an interview. Trade uncertainties have led companies to slow down hiring, and when companies cannot pass on tariff costs to consumers, they often cut costs through layoffs—General Motors recently announced the layoff of 200 employees **Federal Reserve officials are well aware of historical lessons: a slight initial decline in job growth can suddenly evolve into a recession.** The "Sam Rule" also indicates that after a 0.5 percentage point rise in the unemployment rate, a deep economic downturn often follows. Therefore, many Federal Reserve officials view this rate cut as a risk management measure to avoid the aforementioned risks. "The harm to workers from correcting overly loose policies is far less than correcting overly tight policies," explained former JP Morgan economist James Glassman in an email. ## III. Government Shutdown Intensifies Data Gap, Yet Does Not Change Rate Cut Logic The U.S. federal government has been shut down since October 1, leading to the suspension of several key economic data releases, including the monthly employment data and the Consumer Price Index (CPI) originally scheduled for publication by the Bureau of Labor Statistics. Although the September CPI data was released late on October 24 (with a month-on-month increase of 0.3% and a year-on-year increase of 3%; core CPI increased by 0.2% month-on-month and 3% year-on-year), this may be the last significant official data available before the Federal Reserve's monetary policy meeting on October 28-29. Despite the "data blackout," Powell clearly stated in his speech last week that, based on existing data and communication with businesses, **the core trends such as weak employment have not changed.** "The uncertainty surrounding the economic outlook remains high, and the Federal Open Market Committee (FOMC) is highly attentive to the dual risks facing its dual mandate, judging that the downside risks to the labor market have increased," Powell's statement was interpreted by Deutsche Bank's chief U.S. economist Matthew Luzzetti as a clear reason for a rate cut in October. Economic analysts point out that the "data blindness" caused by the government shutdown makes economic judgments more difficult, akin to "blind flying in thick fog," but the Federal Reserve, through its self-funding advantages and extensive corporate contact network, can still obtain key economic information. Private data service providers also offer supplementary references, although these alternative data cannot fully replace the authority of official comprehensive datasets. ## IV. Diverging Expectations for December Rate Cut, Data Dependence Highlighted There are differing market views on whether to continue the rate cut in December. Bostian-Sich believes that **the core logic supporting the October rate cut (the risk to employment outweighs the risk of inflation) will continue, and the Federal Reserve may cut another 25 basis points**, a view shared by most economists. Derivatives market traders even believe the probability of a rate cut in December exceeds 90%. However, some analysts take a cautious stance. Richard Moody, chief economist at a regional financial company, pointed out: "The September CPI data shows signs of increased transmission of tariff costs to core commodity prices, which will provide strong support for FOMC members still focused on inflationary risks, thus the decision for the December meeting is not set in stone." Economists generally believe that whether to cut interest rates in December will heavily depend on subsequent data. However, there are currently no signs of an end to the government shutdown, and it remains uncertain whether the Federal Reserve can obtain sufficient official data to support its decision-making. In addition, the persistence of core inflation decline, further changes in tariff cost transmission, and whether the labor market shows signs of stabilization will all be key variables affecting the direction of future policies. It is worth noting that there are already differences within the Federal Reserve regarding the extent of interest rate cuts: Governor Waller supports a 25 basis point cut in October, while newly appointed Governor Milan advocates for a larger cut of 50 basis points to address the economic downturn risks brought about by escalating trade tensions. This divergence adds uncertainty to the future policy path ## 相關資訊與研究 - [Trump weighs broader cabinet shake-up as Iran war pressure grows](https://longbridge.com/zh-HK/news/281681817.md) - [Omeros Turns Corner With Novo Deal, YARTEMLEA Launch](https://longbridge.com/zh-HK/news/281666535.md) - [Why investors are so eager for the SpaceX IPO countdown](https://longbridge.com/zh-HK/news/281653114.md) - [How to interpret the wild swings in the jobs numbers](https://longbridge.com/zh-HK/news/281681321.md) - [Orient Securities Keeps Their Buy Rating on Geely Automobile Holdings (GELYF)](https://longbridge.com/zh-HK/news/281674321.md)