The US Federal Reserve is poised to cut interest rates for the second consecutive meeting on Wednesday, with a likely quarter percentage-point reduction. This move is expected to lower the bank’s benchmark lending rate to between 3.75 percent and 4.00 percent. Analysts and traders anticipate that most policymakers on the Fed’s rate-setting committee will support this decision, aiming to boost the American economy, which is still grappling with the effects of President Donald Trump’s tariffs.

The US economy has been affected by the ongoing government shutdown, which has resulted in a suspension of official data publication. The Fed has a dual mandate to tackle inflation and unemployment independently, using its key lending rate to stimulate the economy and labor market or constrain activity and dampen inflation. Recent concerns about a cooling labor market have shifted the Fed’s focus towards bolstering hiring, despite inflation remaining above the target.

Former Cleveland Fed president Loretta Mester noted that there is a weakening trend in employment, and the Fed may take out another “insurance cut” against this risk. However, she emphasized the importance of not losing sight of the inflation aspect of the mandate, as inflation risks remain to the upside. The financial markets have largely priced in quarter-point cuts in both October and December, mirroring the median expectation of Fed policymakers.

Fed chair Jerome Powell is expected to maintain an open mind about the next meeting during the post-decision press conference on Wednesday. EY chief economist Gregory Daco stated that it is not a given that there will be a majority of FOMC voters favoring easing in December, and Powell has not made up his mind yet about the necessity of a December rate cut.

The Fed may also announce an end date for reducing the size of its balance sheet, which expanded during the Covid-19 pandemic. Mester believes that the Fed is cautious about financial market stresses and could reduce the balance sheet further, but there is little appetite for this. The ongoing government shutdown and President Trump’s attempts to exert control over the Federal Reserve are simmering in the background, but these issues are unlikely to feature in the discussions this week.

The Fed’s decision will be based on its assessment of the economy and its likely trajectory, with the goal of achieving maximum employment and price stability. As the penultimate decision of 2025, this rate cut is expected to have significant implications for the US economy and financial markets.