Fed Officials Signal Potential Rate Cuts Amid Economic Uncertainty

Fed Officials Weigh Rate Cuts to Support Labor Market

Susan Collins, president of the Boston Federal Reserve and a voting member of the FOMC in 2025, expressed the view that the Federal Reserve should continue to lower interest rates this year. This action is aimed at supporting the labor market while keeping inflation under control. In prepared remarks for an event at the Boston Fed, Collins stated that "while inflation risks have receded somewhat, the labor market faces greater downside risks. Therefore, further policy normalization to support the labor market is a prudent course of action." She also noted that "monetary policy will remain moderately restrictive even after some easing measures are implemented. This stance is essential to ensure that inflation resumes its downward trajectory after the effects of tariffs permeate the economy."

Market Expectations and the Fed's Plan

Futures contract pricing indicates that investors anticipate Federal Reserve officials will cut interest rates at the end of this month. If implemented, this would be the second cut this year. In September, policymakers lowered the benchmark rate by 25 basis points to a target range of 4% - 4.25%.

Labor Market Analysis

Collins acknowledged that it is difficult to determine whether the recent slowdown in hiring activity is due to a decrease in labor demand or a significant decrease in immigration, resulting in a labor supply shortage. She added that to maintain a stable unemployment rate, the U.S. may now only need 40,000 new jobs per month, compared to 80,000 before the pandemic.

Unemployment Projections and Monetary Policy

The Boston Fed president anticipates a "modest increase" in the unemployment rate this year and in early 2026. However, she expects hiring activity to eventually rebound as tariffs and economic uncertainty subside. When asked about the future outlook for interest rates during a Q&A session following the speech, Collins reiterated that there is no preset path for monetary policy. She said she believes a scenario of "holding interest rates steady after further easing" is possible. "Further easing – perhaps another 25 basis point cut – might be appropriate, but I don't think it's necessary to provide longer-term guidance too early," Collins concluded. "A rate cut was implemented in September, and if further action is taken, it may be reasonable to maintain stable interest rates for a period of time in the future."

Views of Other Fed Officials

Earlier the same day, Federal Reserve Governor Michelle Bowman expressed her expectation that the Fed will cut interest rates at the last two policy meetings of 2025. "I still think we will see two more rate cuts before the end of the year," Bowman said at an event in Washington. "I think that as long as the labor market and other economic data evolve as I expect, we will continue to move down the path of lowering the federal funds rate," she added. Bowman supported the rate cut last month. At the previous meeting in July, Bowman voted against cutting the rate, arguing that rate cuts should have been started at that time. She was joined in opposing the proposal by Christopher Waller, also a member of the Federal Reserve Board. Waller and Bowman are among the Fed board members appointed by Trump during his first term. Both Bowman and Waller stated that they do not believe that tariff policies implemented by Trump after returning to the White House will lead to sustained inflation, and that the balance of risks has already shifted in favor of the labor market. Federal Reserve Chairman Jerome Powell, speaking earlier Tuesday at a separate event in Philadelphia, emphasized that signs of labor market weakness are increasing. The Fed's next policy meeting will be held October 28-29, and the final meeting of the year is scheduled for the second week of December. Interest rate futures market positions show that investors expect a 25 basis point rate cut at both meetings.