Powell has said that tariffs are pushing up inflation

The Federal Reserve cut interest rates by a quarter percentage point, bringing the benchmark rate down to a range of 3.75% to 4.00%. Policymakers cited rising risks to employment and weakening momentum in the labor market as key reasons for easing. The decision came as the U.S. government shutdown entered its second month, leaving the Fed without access to official data on inflation, jobs, and economic growth.

Fed Chair Jerome Powell said the ongoing shutdown complicates policy decisions because the central bank is operating with limited visibility into current economic conditions. While the Fed can still evaluate private-sector indicators and high-frequency data, Powell noted that a high level of uncertainty could lead to a cautious stance at the December meeting. He emphasized that another rate cut next month is not guaranteed and that the committee had “strongly differing views” about the path forward.

Despite the data blackout, Powell said earlier readings showed economic growth running stronger than expected, supported by resilient consumer spending. However, the available indicators point to a softer labor market, with hiring and job availability slowing and more companies announcing layoffs. Powell warned that the downside risks to employment have increased over recent months, and that this shift in labor dynamics is a primary factor in the Fed’s decision to ease.

Financial markets reacted immediately. Stocks initially moved higher following the rate cut, with all major U.S. indexes hitting intraday records, but pulled back after Powell cautioned that a December cut was not a foregone conclusion. Futures markets quickly adjusted their expectations, lowering the probability of an additional cut and increasing the odds that rates will stay at their current level into year-end.

Several investment strategists noted that falling interest rates, paired with ample liquidity, remain supportive for equities—although the Fed’s data-dependent approach is harder to execute during a shutdown. Analysts expect the Fed to move carefully from here, watching for signs of either stabilization or further deterioration in the labor market. Powell reiterated that there is no risk-free path, and that upcoming decisions will depend entirely on how conditions evolve once full economic data becomes available again.