In an Extraordinary Move, the Fed Just Cut Rates Without Access to Key Economic Data. What Does That Mean?

For the first time that I can remember, the Federal Reserve just made a 25 basis point interest rate cut while essentially flying blind.

Ordinarily, when the Fed meets, it has a detailed (and current) view of the economy: fresh jobs numbers; consumer spending reports; prices; etc. But because of the ongoing government shutdown, the Bureau of Labor Statistics hasn’t issued a full jobs report since late summer, and the Consumer Price Index update is delayed. These are incredibly relevant numbers when it comes to monetary policy. Making an up-or-down rate decision without these key data points is rare, and something I’m sure you won’t see too often.

Basically, they are driving at night without headlights. Hopefully, the moon is bright. 

Why the Fed cut without data

So why cut rates then? Why not just hold fast?

In my opinion, the Fed is not acting recklessly. Private sector and anecdotal data seem to suggest the economy is still slightly slowing, with the labor market softening. Previous hard data also tells us inflation appears to be relatively stable. Bond markets are also signaling a slowdown. So to me, this cut is more pre-emptive than anything. My guess is in the Fed’s view, waiting for official data could mean waiting too long. I feel they are confident that recent data trends are continuing.

Some people will think they succumbed to presidential pressure. I personally don’t feel this is the case. The Fed certainly understands the emotional and symbolic impact of rate hikes and cuts, but history suggests they do not typically factor that into their decisions. In short, they really don’t care what you, I, or even Donald Trump thinks. And that’s ok. In fact, I personally feel that’s the best way to go – an independent Federal Reserve is a more effective Federal Reserve. They need to think long term and take in the big picture, and not worry too much about what makes people happy right now.      

That said, it is true that there is a deep impact to rate decisions that goes far beyond the raw number. At times, the stock market has made significant moves following rate decisions. And rate decisions also have some momentum behind them, because rates tend to be raised or lowered in cycles. Right now, we are (hopefully) in a rate-cut cycle, and seeing that trend continue is probably reassuring to business owners.

What the rate cut means for the economy

I’ve mentioned previously that in terms of dollars, 25 basis points either way is hardly a make-or-break scenario in most cases. I can’t imagine a competent small to midsize business owner being swayed out of (or into) a loan over 25 basis points.

However, lower rates are still lower rates. For consumers and businesses, the immediate effects are slightly lower borrowing costs. Mortgage and car loan rates will (hopefully) begin to ease, credit card APRs may tick down a hair, and businesses should see marginally cheaper credit.

But as I stated, the deeper impact comes from the emotional component. Businesses invest and expand when they can predict the road ahead. With this rate cut, the Fed is signaling “more of the same” in the direction we’ve been heading.

One time only

For now, the Fed has chosen to act rather than wait. In doing so, it reminds everyone that economic policymaking still involves a fair bit of human judgment.

That said, this “no data” cut feels like a one-off, especially with Fed Chairman Jerome Powell’s post-announcement reiteration that another 2025 cut is not a given. The next Fed meeting is Dec. 9-10, and I do not think we’ll see another cut without hard numbers or some other obvious catalyst.

In plain terms, the Fed will want to see where we’re going. Hey listen, I actually drove home once without headlights. That’s what can happen when you’re 19, broke, and have a piece of crap for a car. And even though I did make it home, I have no desire to ever do that again. I think the Fed probably feels the same: they’d prefer to flip the lights back on before taking another turn.