Decision was passed 9 to 3 by members but central bank signals reluctance to rush into further easing
The Federal Reserve has lowered its policy rate by 25 basis points, delivering its third reduction of the year and confirming what markets had largely anticipated for weeks.
This move takes the federal funds target range down to the 3.50%–3.75% range but the lead-up to its latest meeting had been notable for a split among members, between those who favour cuts to counter weakness in the labor market and those who think easing threatens aggravating inflation. This meeting's vote revealed a degree of consensus with nine voting for and three against - Stephen I. Miran, who wanted a 50 basis points cut, and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred no change.
The Fed’s statement read: "Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months."
Before the announcement, Sam Williamson, senior economist at First American, said a continuing softness in the jobs market will likely force the Fed’s hand again.
“Market expectations for a December rate cut initially retreated after Powell said it was ‘far from guaranteed’ and meeting minutes showed officials leaning toward holding steady,” Williamson said. “However, since then, rising unemployment and softer signals from policymakers have revived bets on a quarter-point cut.”
Williamson said he expected the Fed's messaging, along with the cut and potential dissents, will signal to the market that it will enter 2026 with caution.
“Many officials remain concerned about inflation and worry the Fed may be lowering rates too quickly,” Williamson said. “Against that backdrop, a ‘hawkish cut’ now looks possible, potentially with multiple dissents, with officials likely to stress a higher bar for additional rate cuts.”
However, Powell's expected replacement, Kevin Hassett, who markets believe to be President Trump first choice as the next chair, is expected to keep the pressure on for significantly more cuts in 2026. Asked at the Wall Street Journal CEO Council Summit Tuesday if he would push for substantially lower rates, he said: "If the data suggests that we could do it, then — like right now — I think there’s plenty of room to do it." Pressed on whether that meant more than 25 basis points, he replied: "Correct.”
