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The Federal Reserve lowered its benchmark interest rate for the third consecutive meeting on Wednesday but signaled it may hold rates steady in the months ahead, a shift that could invite criticism from President Donald Trump as he presses for deeper cuts.
The central bank’s rate-setting committee reduced its key rate by a quarter-point to about 3.6%, the lowest level in nearly three years. In its post-meeting statement and quarterly projections, Fed officials indicated they anticipate just one rate cut in 2026, underscoring a cautious approach as inflation remains above their 2% goal.
Lower borrowing costs from the Fed can gradually influence rates on mortgages, auto loans and credit cards, though broader market forces also play a role.
Three officials dissented — the most in six years — highlighting widening rifts on a committee that typically seeks consensus. Two policymakers argued for keeping the rate unchanged, while Stephen Miran, a Trump appointee confirmed in September, pushed for a half-point cut.
The December meeting is expected to usher in a more contentious stretch for the Fed as officials split between those who want additional cuts to support hiring and others who favor holding steady until inflation shows clearer signs of cooling. Without a more decisive improvement in inflation or deterioration in employment, the divide is likely to persist.
The debate comes as Trump considers replacing Chair Jerome Powell when his term expires in May. In an interview with Politico, Trump said “yes” when asked whether “immediate” rate cuts were a litmus test for a new Fed leader. He has signaled he is leaning toward appointing Kevin Hassett, his top economic adviser. Hassett, a frequent advocate of lower borrowing costs, declined this week to specify how many more cuts he would support, saying on CNBC that policymakers should “watch the data.”
Fed projections released Wednesday reflected the divisions. Among the 19 committee members, seven forecast no rate cuts next year, eight anticipated two or more, and four predicted just one. Only 12 members vote on actual policy decisions.
Wednesday’s meeting unfolded against a backdrop of stubbornly high inflation and a gradually weakening job market. Consumer prices have risen 25% over the past five years, with higher costs for groceries, rent and utilities continuing to frustrate many households. A delayed government report last week showed the Fed’s preferred inflation index rose 2.8% in September from a year earlier, well below the surges of 2021 but still elevated.
Job growth has cooled sharply this year and unemployment has risen for three straight months to 4.4%, the highest since 2021, though still low by historical standards. Economists describe the labor market as “low hire, low fire” — with slower job creation but few layoffs.
A shortage of economic data after a government shutdown last month added to policymakers’ uncertainty. When the Fed meets again in late January, officials expect to review up to three months of backlogged reports. A worsening job picture could prompt another rate cut in January, while stable hiring combined with stubborn inflation might lead the Fed to hold rates steady for several months.
