With financial markets bracing for another closely watched policy decision, the Federal Reserve appears poised to deliver a third interest rate cut of the year on Wednesday, even as divisions inside the central bank widen and economic signals remain mixed. Most economists now expect a 25-basis-point reduction, though a larger-than-usual number of dissenting votes is considered likely.
The debate reflects a complicated economic landscape. Inflation, still hovering roughly a percentage point above the Fed’s 2% target, has prompted caution from several policymakers, including Boston Fed President Susan Collins and Kansas City Fed President Jeff Schmid, who argue there is no strong justification for easing policy further. Chicago Fed President Austan Goolsbee has warned against “frontloading” rate cuts before more progress on inflation is clear.
Other officials, however, see room to move rates closer to a neutral setting. New York Fed President John Williams, the Fed’s vice chair, signaled in late November that he could support another cut, a comment that many observers read as an indication that Chair Jerome Powell may be leaning in the same direction. Analysts note that Williams rarely sends such signals without leadership alignment.
Economists expect Powell to follow a similar script to his previous press conference: acknowledging disagreement within the committee, emphasizing caution, and resisting expectations of a rapid series of future cuts. A so-called “hawkish cut” remains a likely scenario—one in which the Fed lowers rates but stresses that further reductions are not guaranteed.
Uncertainty has been compounded by the recent government shutdown, which delayed the release of key economic data. The Fed has not had a full jobs report since late summer. September employment figures, scheduled for release Thursday, are expected to show minimal hiring gains and a steady unemployment rate of 4.3%. Policymakers disagree over whether weak hiring or persistent inflation poses the greater risk.
The broader debate reflects concerns about the cost of living, which remains central to voters and a growing political pressure point. A decision to cut rates could lower borrowing costs for mortgages and auto loans, while holding rates steady risks prolonging affordability challenges.
Source: Yahoo Finance