The Federal Reserve this week lowered interest rates for the second time this year. Officials moved the benchmark federal funds rate to a range of 3.75% to 4%, aiming to support hiring and steady growth as inflation sits above target and federal data remains limited due to the federal government shutdown.
The Fed’s Decision
The Federal Open Market Committee reduced rates by a quarter point, continuing its gradual shift toward easier monetary policy. Committee members pointed to mixed economic conditions.
As previously reported on Conduit Street, the Fed opened the door last month with its first rate cut since 2024, signaling growing concern about softer hiring and tighter credit conditions.
Hiring slowed in recent months, and inflation remains elevated. At the same time, recent indicators point to firmer growth.
The Fed will pause its balance sheet reduction on December 1. Policymakers plan to weigh incoming information once federal data reporting resumes, with no set expectation for another cut in December.
Economic Context
The economy continues to expand at a moderate pace, according to the FOMC. Job growth softened this year, and unemployment edged higher, but remains relatively low. Price pressures eased from earlier peaks but still exceeded the Fed’s 2% target.
The federal shutdown complicates analysis, with delayed employment and inflation reports leaving policymakers without their usual data. Markets adjusted today after Fed officials signaled caution about additional cuts without additional data.
What It Means for Borrowing
Lower interest rates typically work through the economy over time. Households and businesses may see gradually lower rates on credit cards, auto loans, and other borrowing. Mortgage rates track longer-term financial markets, so housing effects may lag.
Counties will watch borrowing costs closely as they advance school, infrastructure, and public safety projects. Even modest rate declines can reduce long-term debt costs and help capital dollars go further.
Local Fiscal Considerations
County budgets still face cost pressures from inflation in construction materials and labor. A lower rate environment may help advance projects, but economic uncertainty and the federal shutdown create planning challenges.
Revenue trends remain tied to labor market strength and consumer activity. Stronger housing or spending would support local income, transfer, and property-related revenues. Slower hiring or weaker confidence could weigh on local revenues.
Looking Ahead
The Fed signaled a data-dependent approach through year-end. Counties should expect a cautious policy path and continue planning for shifting borrowing conditions and broader economic uncertainty as 2026 begins.
Stay tuned to Conduit Street for more information.
Useful Links
Previous Conduit Street Coverage: Fed Cuts Interest Rates for First Time in Nine Months
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