cutting through the fog

The Federal Reserve lowered the Federal Funds Rate (FFR) at its October meeting, marking its second quarter-point cut this year. The FFR is now at its lowest level since 2022, standing at 3.75-4.00%.

After holding steady through most of the year, the central bank’s return to rate easing has been driven largely by a cooling labor market. Payroll growth has slowed in recent months, with August showing a gain of just 18,000 jobs—well below the five-year monthly average of 145,000. Ironically, the September jobs report never arrived, as the federal shutdown has halted much of the government’s data collection, but the Fed proceeded with a cut nonetheless, a reflection of how downbeat the prior months had already been. In its absence, policymakers have leaned on private and alternative data sources to fill in the gaps.

⁠Inflation data, though delayed until just days before the meeting, at least arrived in time to inform the Fed’s decision. The September Consumer Price Index report showed prices rising 3.0% from a year earlier, up slightly from 2.9% in August. 

The September inflation figure can be read in two ways. It was a mild increase, below many forecasts, and relatively restrained given earlier fears of tariff pass-through. Yet inflation has now remained above target for more than four years, and it is unusual, even counterintuitive, for the Fed to be cutting rates while prices are still rising at the pace they are. These opposing viewpoints can be seen from within the Fed itself, with two members dissenting at the October meeting: one actually favored a larger reduction, while the other preferred to hold steady.

There is credible evidence on both sides of the argument. As we will explore in the upcoming edition of the rennie landscape (which will be available on rennie.com/intelligence in early November), tariff pass-through is likely only beginning and will add upward pressure to prices through much of 2026. At the same time, asking rent appreciation has been cooling nationally, a trend not yet fully captured in CPI data. Per Costar, when national asking rent growth peaked at 9.3% annually in March 2022, it took more than a year for that to appear in the CPI, which peaked at 8.2% in March 2023. Given that asking rents are now rising much more slowly (just 0.6% year-over-year as of Q3 2025), that component of the CPI (at 3.2% in September) should continue to cool over the next year. And because shelter costs make up 35% of the headline inflation basket, slower rent growth will play a major role in moderating inflation through 2026.

How exactly those two forces play out, against the backdrop of an evolving labor market–which we won’t know much about until the government shutdown ends–will together dictate the path the Federal Reserve chooses as we head into 2026.