The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday for the third time this year, seeking to shore up a softening labor market even as inflation builds and leaving the prospect of more cuts next year unclear.
Fed officials tentatively signaled at least one more rate cut next year, though their projections varied significantly.
Wednesday’s widely expected move lowers the Fed’s benchmark rate to a range of 3.5 percent to 3.75 percent, the lowest level in about three years. But officials remain sharply divided over how to respond to an economy sending mixed signals: inflation remains above the Fed’s target, which would typically argue for holding rates steady, while slower hiring and a modest uptick in unemployment suggest a case for easing.
Nine Federal Reserve officials backed the move while three dissented. Two officials — Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid favored no rate reduction, while Fed governor Stephen Miran preferred a larger, half-point cut. It was the most dissent since September 2019. Fed officials tentatively signaled at least one more rate cut next year, though their projections varied significantly. Seven penciled in no additional cuts and 12 favored at least one or more through 2026.
Fed policies influence what households and businesses pay for mortgages, credit cards and other loans, and investors are watching closely for guidance on the central bank’s next steps. Chair Jerome H. Powell is scheduled to speak at 2:30 p.m. Eastern time, an address markets will scrutinize for any clues about the pace and scale of future cuts.
The Fed’s job is to keep prices stable and to maximize employment, but it is split on how to navigate what some describe as a light version of stagflation — elevated inflation alongside a labor market that is slowing but far from collapsing. Those divides were exposed at the Fed’s last gathering in October, where officials expressed “strongly differing views about what policy decision would most likely be appropriate,” according to the meeting minutes.
“The Committee is attentive to the risks to both sides of its dual mandate and judged that downside risks to employment rose in recent months,” the Federal Reserve open markets committee said in a statement announcing the rate cut.
Further complicating the decision, the Fed received far less official data about the health of the economy, because of the government shutdown that delayed or canceled the release of reports on the jobs market and consumer prices. Some Fed officials, relying on alternative data or surveys of the business community, argued that progress on inflation had stalled and warned that cuts risked undermining hard-won gains. Others countered that rising unemployment and weakening consumer demand suggested a need for action.
Former Philadelphia Fed president Patrick Harker said this week that Wednesday’s move is shaping up to be a “hawkish cut” — a rate reduction paired with a signal that policymakers may soon pause further easing. Harker said the Fed’s internal divergence reflects an unusual degree of economic “fog,” with inflation not worsening as much as feared, unemployment claims relatively stable, and labor-market signals increasingly difficult to interpret. He noted that monthly job gains below 100,000 would normally be a red flag, but demographic trends and uncertain immigration patterns complicate the baseline.
Those disagreements are unfolding amid unprecedented political pressure from President Donald Trump, who has repeatedly criticized the Fed for not moving quickly enough to lower rates and has threatened to fire Powell. Trump renewed those attacks ahead of this week’s meeting, telling Politico that support for aggressive rate cuts is a litmus test for whoever he taps to succeed Powell, whose term as chair expires in May. The president plans to nominate a successor early next year, though he has already signaled he knows who he is likely to pick.
Patrick J. Toomey, the former senator from Pennsylvania who was top Republican on the Senate Banking Committee, said he is perplexed by Trump’s push for cuts, because inflation remains above target and the broader economy continues to expand. The data shows cooling — not collapsing — labor conditions, which wouldn’t normally justify an urgent push for easing rates, Toomey said.
Toomey warned that the president is taking a much bigger political gamble than he appears to realize. If inflation were to spike again, he said, Trump would “completely own” the fallout after pressuring the Fed when “there’s no obvious need to ease.” That makes the campaign for faster rate cuts “surprising,” Toomey said.
Though Powell secured enough board support to approve Wednesday’s cut, future easing would depend on keeping that alliance.
The split appears to pit a “hawkish” coalition of regional Fed presidents focused on preventing inflation from resurging against a group of governors in Washington who see the greater risk in a softening economy. Officials such as Cleveland Fed President Beth Hammack, who said she would have preferred not to cut rates in October, have argued that inflation remains stubbornly above the bank’s 2 percent target and warned that reducing rates too soon could keep prices rising.
Meanwhile, other officials continue to emphasize that a cooling labor market and softening consumer demand call for cuts, to ensure the economy does not slip further.
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