The Federal Reserve Cuts Interest Rates by a Quarter Point
FOMC Announces Rate Cut Amidst Divisions
Today, the Federal Reserve’s FOMC (Federal Open Market Committee) cut interest rates by 25 basis points to 3.50% – 3.75% in a majority vote (9-3), which included three dissensions. The divisions within the FOMC are between members who see stubborn inflation as the biggest risk and those who believe weakness in the labour market poses the greater threat to the U.S. economy. Indeed, Austan Goolsbee and Jeff Schmid, both regional Federal Reserve presidents from Chicago and Kansas City, voted against a rate cut, whilst Governor Stephen Miran (a President Trump appointee) dissented in favour of a larger cut of 50 basis points.
Deep Divide Over Future Interest Rate Decisions
As details of the meeting were released, it became clear that the Federal Reserve is very much divided over interest rate cuts. Although Chairman Jerome Powell downplayed the dissenting voices over the decision to cut rates, several non-voting regional Federal Reserve presidents signalled their opposition by arguing that the year-end benchmark rate should be kept between 3.75% and 4.00%. Such divisions could make life difficult for the new Chairman (who will be picked by President Trump to get agreements on interest rate decisions). The President also commented that the interest rate cut could have been larger.
Cautionary Language in Post-Meeting Statement
The FOMC has now cut interest rates for the third time in a row, but the language emanating from the post-meeting rate statement was one of caution and reflected the contents of a post-meeting statement back in December 2024. The current statement read, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will assess incoming data, the evolving outlook, and the balance of risks.” However, in December 2024, the same language was used, and as a result, the Federal Reserve did not cut rates for another nine months until September 2025.
Market Uncertainty and the Dual Mandate
Experts suggest that the financial markets will face a degree of uncertainty regarding the Federal Reserve’s monetary policy for 2026, as labour market strength and inflation trends remain unclear. Due to the Federal Reserve’s dual mandate of price and employment stability, the debate within the central bank will continue unabated with one market expert saying, “It’s highly unknowable where we are headed in the next six to nine months, just given all the changes that are out there in this historically kind of odd period where you have tensions on both sides of the mandate.”
Policy Decisions Amidst Data Gaps
Due to the 43-day government shutdown, recent official data on inflation and unemployment are for September and showed inflation rising from 2.70% to 2.80%, and unemployment rising from 4.30% to 4.40%. In the Federal Reserve statement, it was announced that, “Available indicators suggest that economic activity has been expanding at a moderate pace, job gains have slowed this year, and the unemployment rate has edged up through September.”
The latest policy statement was, however, put together without the benefit of inflation and job data but relied on available indicators, which officials said included their own private data, community contacts and internal surveys. Inflation and job data for November are expected to be released next week, followed by a full report on economic growth for Q3. The rate cut outlook for 2026 is uncertain as policymakers remain deeply divided, with median projections pointing to a single cut in 2026 and a further cut in 2027. However, eight officials have signalled their support for two cuts in 2026, whilst seven officials have indicated their support for no rate cuts next year.
