Divided Fed cut rates for a third time

The Federal Reserve reduced interest rate by a quarter point yesterday, bringing the range down to between 3.5% and 3.75%.

But instead of signaling a smooth path ahead, the move exposed deep divisions inside the central bank as the decision was unusually split.

Three officials voted no, the most dissent the Fed has seen in a rate decision since 2019. Stephen Mirren pushed for a larger cut, while two members opposed changing the rates, highlighting how uncertain the outlook remains.

The Fed repeated language suggesting it will proceed carefully and watch incoming data before making another move. 

Chair Jerome Powell said policymakers are well positioned to wait and see how the economy performs, indicating that the Fed may keep borrowing costs unchanged. It is waiting for numbers that would show a weakening job market, which will only be evident when the central bank starts to receive government data again.

The split within the central bank comes as members’ opinions differ on what to tackle first—inflation or the labor market. Lower interest rates make borrowing cheaper, which could lead to inflation. On the other hand, higher rates reduce business investment and increase layoffs, adding to unemployment.

Annual inflation in September was at 2.8%, above the Fed’s 2% target. Meanwhile, unemployment held at 4.4% the same month and edged slightly higher to 4.5% in October.

Looking ahead, officials expect only one rate cut in 2026 and another in 2027. 

The Fed also plans to resume buying Treasury bills, starting with $40 billion, to ease strains in funding markets as Powell’s term winds down.