Unexpected Decision from Top Fed Member Who Supported Rate Cut in October! "He Changed His Mind!" Here's Why…
The US government shutdown has lasted over 40 days, affecting the availability of economic data crucial for the Fed's interest rate decisions. While the Fed made a 25 basis point rate cut in October, uncertainty surrounds the final rate decision in December 2025. Fed Chairman Jerome Powell has stated that a December rate cut is not guaranteed, adding to the division within the Fed. Boston Fed President Susan Collins advocates holding rates steady due to limited data and concerns about high inflation. Collins, who supported October's rate cut, warns that further cuts could hinder inflation's return to the 2% target. Analysts note increasing tensions between hawkish and dovish Fed members, marking an unprecedented internal rift under Powell's tenure. Market speculation continues, with a 53.9% probability of a 25 basis point cut and 46.1% pricing for rates to remain steady, as tracked by the Fed Watch Tool.
Prolonged US Government Shutdown Impacts Federal Reserve Operations
The US government shutdown has extended for more than 40 days since the beginning of October. During this time, the Federal Reserve (Fed) has also suspended the release of key economic data, which it typically relies on to make interest rate decisions. This has added to the uncertainty in financial markets.
October Interest Rate Cut and December Uncertainty
While the Fed implemented a 25 basis point interest rate cut in October as expected, the absence of critical economic data has shifted focus to the Fed's final rate decision for 2025 in December. Fed Chairman Jerome Powell's statement, “A rate cut in December is not certain,” following the October decision has exacerbated market uncertainty about what lies ahead.
Fed Divisions Highlighted by Susan Collins' Remarks
Boston Fed President Susan Collins expressed caution about the path of interest rates, stating she favors keeping rates steady due to the limited availability of data caused by the shutdown. Speaking in Boston, she emphasized the need for great caution in cutting rates due to high inflation concerns. Collins warned that further rate cuts could risk slowing or halting inflation's return to the Fed's 2% target.
Collins Supports Caution in Future Rate Decisions
Collins, who voted in favor of last month's rate cut, pointed out that conditions for additional cuts are challenging, particularly due to limited inflation data. She stressed that more rate cuts should only be considered if there are clear signs of labor market decline. "The most appropriate policy would likely be to keep interest rates at current levels for a while to balance inflation and employment risks," she stated.
Rare Division Within the Federal Reserve Leadership
Wall Street Journal reporter Nick Timiraos, often referred to as the Fed's spokesman, reported on a significant rift within the Fed over rate decisions. According to Timiraos, an unusual clash has emerged between the Fed's hawkish and dovish policymakers. This level of division, he noted, is unprecedented in Powell's nearly eight-year tenure as Fed Chair.
Market Pricing Reflects the Divide
Despite the rate divide, markets continue to price in the possibility of another cut amid the hawk-dove standoff. With interest rates currently at 3.75%-4%, the Fed Watch Tool shows a 53.9% likelihood of a 25 basis point rate cut, compared to a 46.1% chance of leaving rates unchanged. This is not investment advice.