The Federal Reserve of the United States reduced its benchmark interest rate by a quarter-percentage point on Wednesday — the third rate cut this year — bringing it to the lowest range since 2022.
The Fed approved the rate cut by a 9–3 vote, marking the first time in six years that three officials dissented. The move lowers the interest rate to a range of 3.5% to 3.75% in an attempt to respond to a sharper-than-expected slowdown in hiring.
The median projection from policymakers suggests one quarter-point percentage cut for 2026 and another in 2027, maintaining a prediction from an earlier forecast.
Some Fed officials have pushed back against more rate cuts because they are worried that inflation isn’t falling toward the Fed’s 2% target. Inflation has stalled, so they fear that lowering rates further could make it harder to bring prices down.
But Federal Reserve Chair Jerome Powell defended the action, saying that inflation should head back down once the effects of tariffs have been absorbed.
“It doesn’t feel like a hot economy” poised to drive labor-market-based inflation, Powell said during the press conference Wednesday, adding that the Fed is “well positioned” to determine the extent and timing of additional adjustments to the policy rate.
Real estate experts view the Fed’s decision as a signal to lower borrowing costs, paving the way for more commercial transactions and a clearer path toward making homeownership more attainable.
Fed officials have been operating without sufficient data because an extended government shutdown delayed key economic reports. The U.S. Labor Department is expected to release reports next week, including job numbers for October and November and last month’s inflation reading, which could reshape the outlook.
Powell said they’ll review the lagging data with a somewhat “skeptical eye.” He described the situation as “challenging” and emphasized the need to wait and see how the economy evolves.
A late September jobs report, released last month, showed stronger-than-expected hiring. But unemployment edged higher to 4.4%, the highest level since 2021, while August was revised to reflect the actual job losses.
Policymakers are expecting the unemployment rate to land at “4.5% this year and edge lower thereafter,” Powell said.
The rate path for 2026:
Four times a year, the Fed publishes what each official thinks interest rates should be in the future, based on their economic outlook and what they consider “appropriate” policy.
A majority of policymakers kept their projections unchanged from September, signaling just one quarter-rate cut next year, according to the Fed’s well-known “dot-plot” visualization, which displays the spread of the midpoint of the target range for the federal funds rate.
Back in October, Fed official Jeff Schmid voted not to cut the rate, saying at the time he would have preferred to leave the target range unchanged because, by his assessment, “the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high.” Another official, Stephen Miran, who plans to leave the Fed in January, voted in both September and October for larger cuts than the Fed implemented.
This month, Schmid again voted against cutting the rate. Fed official Austan D. Goolsbee joined him in that position. Miran again wanted a larger cut.
Powell said dissents revealed the “tension” over the Fed’s dual mandate: maximum employment and price stability.
“There seems to be a range of assessments of committee members about which of the Federal Reserve’s two mandates is more at risk: the labor market weakening further or the reacceleration of inflation, as the number of dissenters to the final decision has risen over the past three meetings, suggesting a bumpier road ahead for the Fed Chair to gain consensus,” Christine Cooper, the chief U.S. economist at CoStar Group, said.
Responding to a question about differing views within the committee, Powell stressed that the divide isn’t simply between board members and regional bank presidents.
Powell stressed that the current debate is whether to pause rate cuts now or lower them further — either slightly or “more than a little.”
Against that backdrop, Fed officials see the inflation rate at 2.4% by the end of 2026, slightly lower than September’s forecast of 2.6%. They also seem more upbeat, projecting the gross domestic product will rise to 2.3%, compared with 1.8% previously, driven largely by stronger consumer spending.
“A number of things are driving what’s happening in the forecast,” Powell said. “It’s partly that consumer spending has held up, it’s been resilient. To another degree, it is that spending on data centers and related to AI has been holding up business investment.”