A divided Federal Reserve trims rates again amid ongoing economic concerns
The Federal Reserve reduced its influential policy rate for the third time this year, continuing its careful balancing act between stubborn inflation and signs of softening in the job market. While the move could help spark growth, Fed Chair Jerome Powell has warned that there is no risk-free path for the central bank as it navigates this tension.
Powell reiterated that message on Wednesday, saying, “There is no risk free path for policy as we navigate this tension between our employment and inflation goals. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem.” The quarter-point cut is a cautious step that could lower costs for Americans with mortgages, credit card debt, or those seeking new or refinanced loans. It should also reduce borrowing costs for businesses.
The decision to cut was framed by several factors, according to Powell. He noted that the labor market has continued to cool gradually, with unemployment rising by about 0.3 percentage points from June through September. He also suggested that recent payroll data may have overstated job gains, estimating that actual payroll growth has been closer to 20,000 jobs lost per month rather than the widely reported 40,000 gained per month.
Investors anticipated the cut, yet some committee members argued that lower rates could feed inflation. The Fed’s target range is now the lowest it has been since late 2022.
Three Fed officials dissented against the cut. Fed Governor Miran, currently on leave from the White House, favored a larger, half-point reduction. Regional Presidents Schmid and Goolsbee voted to hold rates steady. This trio of dissenters marked the most disagreements on the committee since September 2019.
In its economic projections released with the rate decision, Fed officials projected stronger growth next year at about 2.3%, with one more rate cut anticipated in the coming year and another in 2027. The accompanying language suggested Wednesday’s cut could be the last for now, at least until the committee reconvenes on Jan. 27-28. Powell echoed that stance, saying the Fed is “well positioned to wait to see how the economy evolves.”
Inflation is expected to ease to about 2.4% next year, down from a prior forecast of 2.6%. The central bank noted that economic activity has been expanding at a moderate pace, job gains have slowed, and the unemployment rate has risen through September. Still, inflation remains somewhat elevated, and affordability remains a nationwide concern.
The broader political and economic backdrop features ongoing debate over how to address rising costs. President Donald Trump has repeatedly called for further rate cuts, positioning affordability as a central campaign issue. Meanwhile, uncertainty about the broader economy persists, in part due to data gaps caused by a recent government shutdown. Private-sector data have painted a more cautious picture; for example, ADP’s November report showed substantial job losses among small businesses.
With several key inflation indicators delayed—the October CPI was canceled and the November inflation release has been postponed—the absence of fresh data complicates the Fed’s assessment. Powell acknowledged that inflation data have been sparse since the October meeting, noting that goods inflation has risen due to tariffs, while the services sector shows signs of disinflation.
Markets reacted positively to the Fed’s decision, with the S&P 500 rising modestly. In addition to rate action, the Fed announced monthly purchases of U.S. Treasury bonds to bolster the plumbing of the financial system, a measure that supported sentiment and contributed to a stock rally.
Source: Steve Kopack, NBC News
