Markets Brace for Second Fed Rate Cut
- Buster Wurm
- Oct 28
- 2 min read
When the Federal Open Market Committee (FOMC) "cuts rates," it lowers the federal funds rate. This is the interest rate at which banks lend to one another overnight. This benchmark rate influences borrowing costs across the economy, including mortgages, auto loans, and credit cards. A rate cut makes borrowing cheaper and typically encourages spending, investment, and job growth, which can help support a slowing economy.
Heading into Wednesday's FOMC meeting, markets are overwhelmingly pricing in another quarter-point rate cut, as policymakers attempt to stabilize a cooling labor market without reigniting inflation. According to CME's FedWatch Tool, futures imply 97.8% odds of a rate cut, as of the time of writing this article, with traders anticipating at least two more reductions by early 2026.
Friday's inflation data offered modest reassurance. As Reuters reported, consumer prices rose less than expected in September, reinforcing the view that inflationary pressures are easing. Core inflation slowed to its weakest pace in three months, suggesting the Federal Reserve's restrictive stance earlier this year has successfully cooled price growth without triggering a deep recession.
However, a Bloomberg report noted that the central bank remains deeply divided. While dovish officials emphasize the risks of over-tightening amid a "pretty considerably softened" labor market, others, such as the Cleveland Fed's Beth Hammack and the St. Louis Fed's Alberto Musalem, warn against over-cutting, citing persistent service-sector inflation above 3% and long-term inflation expectations creeping higher.
Still, the lack of official labor data due to the government shutdown has left clarity limited. Private indicators show hiring growth slowing to roughly 29,000 jobs per month, fueling expectations that Chair Jerome Powell will maintain an easing bias into December.
Financial markets have already moved in anticipation: the 10-year Treasury yield fell below 4%, and the bond market has logged its strongest gains since 2020 as investors bet on continued monetary support.
The upcoming FOMC decision will likely confirm a 25-basis-point cut, but the path beyond October remains uncertain. A cautious Fed may signal flexibility, acknowledging progress on inflation while reaffirming its commitment to returning prices to the 2% target without undermining economic stability.
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