The US Dilemma: Fed Cuts Rates, But Powell Pours Cold Water on Hopes for December Move

The Federal Reserve cut interest rates for the second time in 2025, but Chair Jerome Powell signals deep uncertainty for future policy amid a government shutdown

The Federal Reserve enacted its second consecutive interest rate cut of 2025 on Wednesday, a widely anticipated move to bolster a cooling US economy. However, policymakers, led by Chair Jerome Powell, delivered a stark warning that future cuts are far from guaranteed as a month-long government shutdown obscures their view of the economy.

The Federal Open Market Committee (FOMC) lowered its benchmark federal funds rate by 25 basis points to a new target range of 3.75% to 4.00%. The move reflects the central bank's growing concern over a weakening labor market, which has seen unemployment rise to 4.3% and recent layoff announcements from major corporations like Amazon and UPS rattle markets.

In his press conference, Chair Powell abandoned any sense of a preset course, stating a December cut is "not a foregone conclusion, far from it." He likened the Fed's predicament to "driving in the fog," noting that the ongoing government shutdown, now in its fourth week, has halted the release of critical data, including the monthly jobs report. This "data blackout" has left the Fed to navigate by "driving more slowly," suggesting a pause may be necessary to assess the landscape.

The Stagflation Dilemma

The Fed's decision highlights a hardening rift among policymakers, who voted 10-2 in favor of the cut. The dissenters represented both sides of the policy debate: one member favored a more aggressive 50-point cut to support jobs, while another preferred no change at all.

This division underscores the central bank's core challenge: it is facing the growing risk of mild stagflation. The labor market, the Fed's primary concern, is clearly softening. Yet, inflation remains stubbornly elevated. The most recent Consumer Price Index report, released late last week, showed prices rising at a 3.0% annual pace, a level unchanged from August and significantly above the Fed's 2% target. Powell acknowledged that tariff policies continue to put upward pressure on the price of goods, complicating the fight against inflation.

An Uncertain Path to 2026

With Wednesday's cut, the Fed is attempting a difficult balancing act. It is providing stimulus to cushion the job market from a potential downturn while trying not to fuel an already persistent inflation problem^. The "fog" of the shutdown means that by the time the Fed’s December meeting arrives, policymakers may still lack the clear official data needed to justify another move.

For markets and businesses heading toward the end of 2025, Powell’s message was one of caution. The path of monetary policy is now completely data-dependent, at the very moment the data has disappeared. As the US economy grapples with a political impasse, slowing growth, and rising prices, the central bank has signaled it is entering a period of maximum uncertainty.