Divided US central bank cuts interest rate
In another split vote, the Federal Reserve cut interest rates but signaled it would likely pause further cuts in borrowing costs as officials seek clearer signals about the direction of the labor market and inflation, which “remains somewhat elevated.”
New forecasts released after the US central bank’s two-day meeting showed the median policymaker expected just a quarter-point cut in 2026; Same outlook as in September; Inflation is expected to slow to around 2.4 percent by the end of next year, even as economic growth rises above trend at 2.3 percent and the unemployment rate remains moderate at 4.4 percent.
“The Committee will carefully consider incoming data as it considers the scope and timing of additional adjustments to the target range for the federal funds rate,” the Federal Open Market Committee, which sets rates, said in language used in the past to signal a pause in policy action; This is a view that contrasts with the market’s expectation of two rate cuts next year.
The decision to cut the benchmark policy rate by a quarter point to the 3.50-3.75 percent range sparked three different views, with Chicago Fed president Austan Goolsbee joining Kansas City Fed president Jeffrey Schmid in arguing that the policy rate should remain unchanged, and Fed governor Stephen Miran again advocating a larger half-point cut.
How monetary policy evolves from here, which could revolve around the performance of the economy and heading into the US midterm election year in which President Donald Trump will call for sharper reductions, will now depend on data still lagging behind the effects of the 43-day federal government shutdown in October and November.
The forecasts are optimistic in a sense: Interest rates may remain higher than expected, but the economy appears to be growing faster as inflation falls and the unemployment rate also falls.
But the latest policy statement and forecasts were prepared without drawing on recent employment and inflation reports, relying instead on “available indicators” that Fed officials said include their own internal surveys, community contacts and proprietary data.
The latest official data on unemployment and inflation is for September and shows the unemployment rate rising from 4.3 percent to 4.4 percent, while the Fed’s preferred measure of inflation also rose from 2.7 percent to 2.8 percent.
The Fed has a two percent inflation target, but the pace of price increases has risen steadily from 2.3 percent in April; This can be attributed, at least in part, to the pass-through of increased import duties to consumers and the driving force behind the central bank’s policy divergence.
Employment and inflation data for November will be released next week, followed by a detailed economic growth report for the third quarter.
“Current indicators indicate that economic activity is expanding at a moderate pace,” the Fed said in its statement.
“Employment gains have slowed this year, and the unemployment rate rose through September,” he said, dropping the “low” reference to the unemployment rate.
Forecasts showed that a core of six policymakers favored no rate cuts this year, and seven policymakers predicted no further rate cuts in 2026.
The median forecast points to an additional quarter-point cut in 2027, showing inflation continuing to fall towards the central bank’s two percent target.
Fed Chairman Jerome Powell will hold a press conference later Wednesday to provide details of the meeting.
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