The Federal Reserve, the U.S. central bank, is highly likely to cut interest rates on Wednesday (local time) and may signal further reductions in December as it seeks to boost employment.

This would be the second rate cut this year and could benefit consumers by lowering the cost of mortgages and car loans.

Since Fed Chair Jerome Powell strongly suggested in late August that rates would likely fall this year, the average rate on a 30-year fixed mortgage has fallen from 6.6% to about 6.2%, helping to stimulate a sluggish housing market.

Still, the Fed finds itself navigating unusual economic times, making it harder than usual to predict its future moves.

Employment has nearly stalled, but inflation remains elevated, and the economy’s otherwise solid growth is heavily reliant on massive investments in artificial intelligence infrastructure by leading technology companies.

The Fed is assessing these trends without the benefit of much of the government data it uses to gauge the economy’s health. The release of September’s jobs report was delayed by a government shutdown, and the White House said last week that even October’s inflation figures might not be compiled.

The shutdown itself could also hurt the economy in the coming months, depending on its duration. With roughly 750,000 federal employees on unpaid leave for nearly a month, consumer spending, a key engine of the economy, could soon weaken.

The employment data of federal workers — who were let go from a Trump administration division of government efficiency early this year — could be formally included in monthly jobs data next month when they are reported, making monthly employment figures look worse.

Powell has noted the growing risk of a stall in employment, which is as concerning as inflation that remains elevated. The Fed, therefore, needs to lower interest rates to a level that doesn’t trigger a downturn or economic stimulus.

Most Fed officials believe that the current benchmark interest rate of 4.1% is high enough to slow economic growth and curb inflation, the Fed’s primary goal since inflation hit a 40-year high three years ago.

The Fed is expected to lower its benchmark rate to about 3.9% on Wednesday. With job gains at risk, the Fed's goal is to raise interest rates to a relaxed level.

Before the Oct. 1 government shutdown choked off the flow of data, monthly job gains had been weak, averaging just 29,000 per month over the past three months. The unemployment rate nudged up slightly to 4.3% in August from 4.2% in July, still a low level.

However, the rate of layoffs also remains low, leading Powell and other officials to refer to a job market where “if hiring is low, so is firing.”

At the same time, last week’s inflation report, released more than a week late because of the government shutdown, showed that inflation remains elevated but is not accelerating, suggesting that a rate hike may not be needed to curb inflation.

Financial markets are pricing in a more than 90% chance of another rate cut in December, according to CME Fedwatch, and Fed officials have done little to quash those expectations so far.

Analysts see a high probability of an additional rate cut in December if Powell reiterates at his Wednesday news conference that the risk of a weak jobs market remains high.

By Hong Seong-gu, Editor-in-Chief, NNP / Special Correspondent NNP info@newsandpost.com