Fed cuts rates with three dissents, projects just one cut in 2026

US Federal Reserve officials delivered a third consecutive interest rate reduction and maintained their outlook for just one cut in 2026.

The Federal Open Market Committee (FOMC) voted 9-3 Wednesday to lower the benchmark federal funds rate to a range of 3.5%-3.75%. It also subtly altered the wording of its statement, suggesting greater uncertainty about when it might cut rates again.

Read:
US Fed cuts rates by another quarter point [Oct 2025]
US Fed cuts rates, signals labour market concerns [Sep 2025]

The dissents and the rate projections highlight divisions among policymakers that have emerged over whether weakness in the labour market or stubborn inflation represent the larger danger to the US economy.

In its October statement, the FOMC described what it would take into account “in considering additional adjustments” to its benchmark. In Wednesday’s statement the committee reverted to language used last December – just before a pause in rate cuts – to say “in considering the extent and timing of additional adjustments”.

The result marked the first time since 2019 that three officials voted against a policy decision, with dissents on both ends of the policy spectrum.

The S&P 500 rose, while Treasury yields and the dollar declined.

Two regional Fed presidents – Austan Goolsbee from Chicago and Jeff Schmid from Kansas City – voted against the decision, preferring to keep rates unchanged. Governor Stephen Miran, who Trump appointed to the central bank in September, dissented again in favour of a larger, half-point reduction.

Read: The Fed has rarely been so divided over its long-term plan for interest rates

Fed officials also authorised fresh purchases of short-term Treasury securities to maintain an “ample” supply of bank reserves.

Fed chair Jerome Powell will hold a press conference in Washington later on Wednesday evening (SA time).

The decision to lower rates comes after divisions on the committee spilled into public view in recent weeks.

Following the last rate cut in October, several officials warned of persistent inflation, indicating their hesitancy to support another reduction. Others remained focused on a weakening labour market, calling for at least one more cut.

Conflicting data helps explain why there hasn’t been a unanimous vote on the FOMC since June.

Read: Fed rate cut is attempt to prevent recession [Sep 2025]

Unemployment moved to 4.4% in September, up from 4.1% in June. But prices – as measured by the Fed’s preferred gauge of inflation – rose 2.8% in the year through September, still meaningfully higher than the central bank’s 2% target.

The government shutdown has further complicated the policy outlook by delaying the release of key data.

Despite the divisions on the committee and economic uncertainty, investors had expected a cut on Wednesday after New York Fed President John Williams, who is viewed as close to Powell, signalled his support for a December reduction in a 21 November speech.

Fresh forecasts

In their new economic forecasts, officials’ median projections pointed to one cut in 2026 and one in 2027. The rate outlook remained deeply divided, however. Seven officials indicated they favoured holding rates steady for all of 2026, while eight signalled support for at least two.

Officials upgraded their median outlook for growth in 2026, to 2.3% from the 1.8% they projected in September. They also foresaw inflation declining to 2.4% next year, from the 2.6% they projected in September.

Read: The five candidates in the running to replace Powell as Fed chair

The policy decision also comes soon after President Donald Trump said he has decided who he will nominate to succeed Powell as Fed chair in May, and indicated a decision will be announced early next year.

The White House has poured criticism on the Fed for not cutting interest rates more quickly, fuelling concerns that the central bank’s independence is under threat.

Fed officials approved the new Treasury purchases beginning 12 December. The move was anticipated by many Wall Street banks as a way to support liquidity in overnight funding markets.

Since 2022 and until this month, the central bank had been reducing the size of its Treasury holdings, aiming to reach the smallest possible size without disrupting money markets.

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