WASHINGTON D.C. – The United States Federal Reserve is widely expected to announce another cut to its benchmark interest rate on Wednesday, October 29, 2025, as it navigates a cooling American labour market and moderating inflation. The decision, anticipated by global financial markets, carries significant implications for Kenya, potentially influencing borrowing costs, the strength of the shilling, and foreign investment flows.

The Federal Open Market Committee (FOMC) is projected to lower the federal funds rate by 25 basis points to a range of 3.75% to 4.00%. This follows a similar reduction in September, which was the first cut since December 2024. Market analysts and futures traders have priced in a near-certainty for the move, with the CME FedWatch Tool showing a probability of over 96%. Economists from institutions like Bank of America and Barclays are also forecasting the quarter-point reduction.

The primary drivers for the expected cut are concerns over a weakening U.S. job market, even as broader economic growth remains surprisingly robust. Fed Chair Jerome Powell has previously highlighted the rising downside risks to employment. While a persistent U.S. government shutdown has delayed the release of official jobs data, private sector reports have indicated a slowdown in hiring. Concurrently, recent Consumer Price Index (CPI) data showed U.S. inflation at 3.0%, a figure considered manageable and which provides the Fed with the flexibility to stimulate the economy.

Implications for the Kenyan Economy

For Kenya, monetary policy decisions made in Washington can have significant ripple effects. A reduction in U.S. interest rates typically leads to a weaker U.S. dollar globally. This can provide a boost to the Kenyan shilling, which has faced pressure in recent years. A stronger shilling makes imports, which are often paid for in dollars, cheaper for Kenyans, potentially helping to curb domestic inflation.

Furthermore, a rate cut offers potential relief for Kenya's public debt. A substantial portion of the country's external loans, including syndicated loans and financing for the Standard Gauge Railway (SGR), is denominated in U.S. dollars and tied to global benchmark rates influenced by the Fed. A lower Fed funds rate can translate into lower interest payments, freeing up fiscal space for other government priorities. The Treasury has previously noted the strain that expensive syndicated loans place on the exchequer.

The decision could also stimulate foreign investment into Kenya. With lower returns on U.S. assets, international investors may look towards emerging markets like Kenya in search of higher yields. Kiprono Kittony, Chairman of the Nairobi Securities Exchange, has previously noted that U.S. rate cuts are expected to drive dollar inflows into frontier markets, boosting demand for local bonds and equities.

Global Economic Context

The Fed's move is part of a broader trend of monetary easing by central banks worldwide as they seek to support growth. Central banks in the Eurozone, Canada, and Switzerland have already cut rates. However, the global economic picture remains complex, with ongoing trade tensions and geopolitical uncertainty presenting risks.

Analysts will be closely watching Fed Chair Jerome Powell’s press conference at 9:30 PM EAT (2:30 PM ET) for signals about the central bank's future plans. While another rate cut is anticipated in December, the outlook for 2026 is less certain and will be heavily dependent on incoming data on inflation and employment. The Fed's dual mandate requires it to balance the goals of maximum employment and price stability, a task complicated by the current economic climate where growth is strong but the labour market is showing signs of weakness.

For Kenyan businesses and consumers, the immediate impact may be subtle, but the downstream effects—a more stable currency, potentially lower borrowing costs, and increased foreign investment—could provide a welcome tailwind for the national economy in the months ahead.