The Federal Reserve is expected to announce a new adjustment to its benchmark interest rate on Wednesday, marking its first major policy move since the recent U.S. government shutdown disrupted the release of key economic data.

The decision comes at a moment of growing economic uncertainty, as the latest inflation report, one of the few data releases unaffected by the shutdown, showed a continued acceleration in price increases — a development that could complicate the Fed’s balancing act between controlling inflation and supporting a weakening labor market.

Fed Faces Risk of “Stagflation”

Recent months have seen a troubling combination of rising inflation and slowing job growth, raising fears of stagflation — a rare and difficult-to-manage mix of stagnant employment and persistent price pressures.

The dilemma has left Fed policymakers in a bind. Raising rates could help curb inflation but risks deepening a slowdown in hiring and consumer spending. Conversely, lowering rates to stimulate economic activity could fuel inflation further, eroding purchasing power.

Another Rate Cut Expected

Last month, the Fed cut interest rates by a quarter of a percentage point, the first such move this year, lowering the federal funds rate to a range of 4% to 4.25%. The move aimed to shore up the job market while maintaining much of the aggressive rate tightening imposed during the post-pandemic inflation surge.

Market analysts widely expect the Fed to cut rates again by another quarter point on Wednesday, according to the CME FedWatch Tool, which tracks investor expectations for monetary policy decisions.

“It’s a challenging situation when our goals are in tension like this,” Fed Chair Jerome Powell said last month, noting that policymakers are increasingly focused on the sluggish labor market.

Political Pressure and Policy Divergence

The expected rate cut aligns with long-standing calls from President Donald Trump, who has repeatedly urged the central bank to loosen monetary policy to stimulate growth.

However, the anticipated cut will likely fall short of Trump’s demands. The Federal Open Market Committee (FOMC) currently projects two more quarter-point cuts before year’s end — far less than the three full percentage points Trump has publicly advocated.

Trump’s ongoing pressure campaign on the Fed, described by economists as without precedent in modern U.S. history, has drawn scrutiny for its potential to undermine the central bank’s independence.

As the Fed weighs its next move, analysts say Wednesday’s decision will signal how far the central bank is willing to go in balancing inflation control with job market support — and how resilient the U.S. economy remains amid political, fiscal, and global uncertainty.