America’s central banking system confronts an extraordinary challenge this week as it deliberates over interest rates while operating with significantly reduced economic intelligence. The Federal Reserve’s December meeting comes at a moment when internal disagreements and data scarcity converge to create unusual uncertainty.
Following aggressive rate hikes that pushed borrowing costs to decades-high levels in 2022, the Fed began reversing course last fall. The committee implemented two substantial half-point cuts in September and October, bringing rates to their current 3.75% to 4% range. However, consensus on a third reduction has proven elusive among voting members.
The absence of October’s economic data, caused by the government shutdown that closed the Bureau of Labor Statistics for six weeks, has stripped officials of critical information. November’s employment and inflation figures won’t be available until later in December, leaving policymakers to make decisions based on outdated information during a period of significant economic flux.
Chair Jerome Powell has emphasized the need for caution in this environment, comparing the situation to driving in fog—a scenario requiring reduced speed. The dual mandate to control inflation while maintaining employment stability has become increasingly difficult as both metrics move in concerning directions. Inflation has surged from 2.3% to 3% between April and September, while unemployment rose from 4% to 4.4%.
The political dimension adds another layer of complexity to this week’s deliberations. With Powell’s chairmanship ending in May, speculation intensifies around Kevin Hassett as a potential successor. Hassett has been vocal about supporting additional rate cuts, aligning with administration preferences for looser monetary policy. The 12-member Federal Open Market Committee will reveal its decision Wednesday afternoon, marking the eighth policy meeting of the year.