The Federal Reserve lowered its benchmark interest rate for the third time this year on Wednesday, opting for another quarter-point cut as policymakers attempt to balance persistent inflation pressures with mounting signs of labor market weakness. The decision places the target range at its lowest level since late 2022 and marks one of the most divided votes the committee has seen in years.
Fed Chair Jerome Powell underscored that the path forward remains uncertain, cautioning that the central bank faces difficult trade-offs as it seeks to restore price stability without stalling economic momentum. “There is no risk free path for policy as we navigate this tension between our employment and inflation goals,” he said at a press briefing. “Our obligation is to make sure that a one time increase in the price level does not become an ongoing inflation problem.”
The rate cut had largely been priced into markets, though some last-minute doubts emerged after several policymakers voiced concerns that easing too quickly could reignite inflation. Still, the move offers modest relief for households carrying mortgages, credit card balances, or personal loans, and lowers borrowing costs for businesses hoping to shore up investment.
Rare dissent signals divisions inside the Fed
Wednesday’s decision included three dissents — a notable break from the typically unified Federal Open Market Committee. Fed governor Stephen Miran advocated a larger half-point cut, while regional presidents Jeff Schmid and Austan Goolsbee voted to hold rates steady. It was the highest level of disagreement since September 2019.
The split reflects uncertainty over how quickly inflation is cooling and how much the labor market has weakened toward year-end. The committee’s statement noted that job gains have slowed and the unemployment rate has moved higher through September. At the same time, inflation has “moved up since earlier in the year and remains somewhat elevated.”
The Fed’s updated economic projections show officials expect growth to accelerate to 2.3 percent next year, slightly above earlier forecasts. They anticipate one additional rate cut in 2026 and another in 2027. However, the wording of Wednesday’s announcement suggests policymakers are likely to pause at their next meeting in late January unless economic conditions shift meaningfully.
Inflation tracking remains clouded by data gaps
The fall federal government shutdown has left economists working with unusually sparse data. The Bureau of Labor Statistics released September payroll figures, but October’s jobs report was canceled and November’s figures will not be available until December 16. Inflation tracking is also delayed, with October’s consumer price index canceled and November’s CPI now due December 18.
Powell acknowledged the uncertainty: “Very little data on inflation have been released since our meeting in October.” Goods inflation has strengthened, he said, reflecting the impact of tariffs, while services inflation continues to decelerate. The Fed is weighing those conflicting signals while attempting to avoid a premature turn that could undermine progress on disinflation.
Alternative data suggests the labor market may be softening more sharply than official statistics indicate. Payroll processor ADP reported that small businesses shed 120,000 jobs in November, the biggest decline in more than two years. Combined with earlier estimates showing cooling hiring trends, analysts say the Fed is now navigating without its typical visibility.
Markets rally as the Fed resumes bond purchases
Financial markets reacted positively to the Fed’s announcement. Stocks pushed higher, with the S&P 500 rising about a quarter of a percent in afternoon trading. Investors also responded to the Fed’s separate decision to resume monthly purchases of U.S. Treasury bonds, a move designed to stabilize financial system liquidity and lower long-term borrowing costs.
While President Donald Trump has repeatedly urged the Fed to cut rates more aggressively, he has recently downplayed ongoing concerns about affordability despite campaigning heavily on the issue. The Fed, however, signaled it remains alert to inflation risks even as it acknowledges pressures on workers and businesses.
As the central bank enters 2026, the tension between supporting growth and preventing a resurgence in consumer prices will dominate the policy landscape. With key economic indicators delayed and political pressure rising, Fed officials face a period in which every decision carries significant stakes — and little margin for error.