The Federal Reserve is expected to cut interest rates in the early hours of Thursday Beijing time. Policymakers need to address the economic data gap caused by the government shutdown, with internal disagreements: some doubt the necessity of rate cuts due to high inflation, while others believe economic and employment conditions may weaken if rates are not lowered. This rate cut may be accompanied by ambiguous or even hawkish statements regarding the interest rate path next year.

The new quarterly economic forecast summary will display Federal Reserve officials’ expectations for the 2026 economic outlook and interest rate trajectory, but this week's forecasts may be short-lived, as U.S. statistical agencies will release a large volume of data delayed due to the 43-day shutdown, including November employment and inflation reports.

TD Securities predicts that the FOMC will cut rates by 25 basis points this week, with a hawkish policy outlook. The decision may be contentious, potentially matching or exceeding the disagreement seen in October. The Federal Reserve has received the latest core inflation and employment data from September, with an unemployment rate of 4.4% and inflation at 2.8%. When rates were cut to the 3.75%-4.00% range on October 29, there were double dissenting votes. Fed Governor Michelle Bowman might again oppose a 50 basis point rate cut, and several regional Fed presidents oppose further rate reductions.

Rate decisions, economic forecasts, and new policy statements will be released at 2 a.m. on Thursday, followed by a press conference with Powell half an hour later. Investors expect the Fed to cut rates twice more by the end of 2026, with the benchmark rate staying in the 3.00%-3.25% range. As of September, policymakers’ median forecast for the end of 2026 indicates a rate in the 3.25%-3.50% range. JPMorgan economists say the new rate forecast may reflect concerns about rate cuts, and the policy statement might imply a lower likelihood of subsequent cuts, with Powell possibly emphasizing that only a significant deterioration in the employment market would lead to further rate cuts.

The outcome may be unable to resolve internal disagreements within the Fed and with Trump, who has called for substantial rate cuts and has indicated he is considering Powell as a successor. Supporters of rate cuts argue it is to prevent a decline in the employment market, while opponents believe inflation could persist or even rise next year. Standard Chartered economists say that given Powell’s expected departure in May next year, policymakers will find it difficult to communicate a clear plan, and it is reasonable for markets to remain skeptical of policy signals.