WASHINGTON: A sharply divided Federal Reserve cut interest rates on Wednesday but signaled borrowing costs are unlikely to drop further in the near term as it awaits clarity on the direction of a job market showing signs of softening, inflation that “remains somewhat elevated” and an economy it sees picking up steam next year.
New policymaker projections issued after the US central bank's final two-day meeting of 2025 showed a median expectation for a single quarter-percentage-point cut next year, the same as in September. But the wide range of estimates highlighted deep disagreement about where to take monetary policy in 2026 and beyond in an economy being reshaped by President Donald Trump’s policies and an artificial-intelligence investment boom.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data,” the Federal Open Market Committee said in a policy statement that added language typically used to signal a pause — an outlook at odds with market expectations of two rate cuts in 2026.
Policymakers’ updated estimates — hindered by incomplete data following a six-week government shutdown — also showed expectations for inflation to slow to around 2.4% by the end of next year even as economic growth accelerates to 2.3% and unemployment holds at 4.4%, easing concerns about stagflation.
The committee remains divided heading into a leadership transition, with Trump expected to nominate a successor to Fed Chair Jerome Powell in the coming weeks.
During a press conference, Powell noted: “Having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves.” He added that officials have made no decision about the next policy move ahead of the late-January meeting.
Major US stock indices closed higher, the dollar weakened, and Treasury yields fell.
The 25-basis-point cut was widely expected, though the updated “dot plot” revealed a wide spread of views, with six policymakers indicating no cut at this meeting.
The decision to lower the benchmark rate to a 3.50%–3.75% range drew three dissents: Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid favored no change, while Fed Governor Stephen Miran again argued for a larger half-point cut.
How policy evolves from here — heading into a US midterm election year and with Trump urging sharper reductions — will depend on data still lagging after the 43-day government shutdown. Official job and inflation data for November are due next week.
The updated projections showed six policymakers preferring no cut this year and seven expecting no further cuts in 2026. The median outlook includes one additional quarter-point cut in 2027 as inflation edges back toward the 2% target.
Some analysts expect the Fed to remain on hold for a while given the lack of consensus, slow data flow, and the upcoming leadership change, though softness in labor indicators could bring another 25-basis-point cut into consideration for January.— Reuters
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