Fed Delivers Third Rate Cut, Sticks to One Cut in 2026
In their new forecasts, Fed officials expect one additional rate cut in 2026 and another in 2027. However, views remain divided.
Quick overview
- Dissent within the Federal Reserve is increasing as Jerome Powell's leadership nears its end, raising concerns about the Fed's future independence.
- The Fed has cut rates to a 3.5%–3.75% range, with three consecutive reductions and improved economic projections compared to earlier forecasts.
- While some FOMC members pushed for more aggressive rate cuts, others preferred to maintain current rates, highlighting divisions within the committee.
- The Fed anticipates GDP growth of 1.7% this year and 2.3% next year, with inflation expected to decrease to 2.4% by 2026.
Dissent again surfaced inside the Federal Reserve’s inner circle. With only three meetings left under Jerome Powell’s leadership, uncertainty over the Fed’s future independence is gaining traction.
The Federal Reserve ultimately cut rates to a 3.5%–3.75% range, ending the year with three consecutive reductions. Looking ahead, economic projections showed a notable improvement compared with September’s outlook. Still, questions remain: Chair Jerome Powell will step down in May 2026, and the leading candidate to replace him, Kevin Hassett, is openly advocating for aggressive rate cuts.
In its official statement, the Federal Open Market Committee (FOMC) — the Fed body responsible for rate decisions — argued that “available indicators suggest that economic activity has expanded at a moderate pace,” while “job growth has slowed this year and the unemployment rate has increased slightly through September.”
Growing dissent within the Fed’s core decision-making group is becoming a focal point for markets. Three FOMC members opposed the latest cut. Stephen Miran — one of Donald Trump’s closest allies inside the Fed — pushed for a 50-basis-point cut, while Austan Goolsbee and Jeffrey R. Schmid preferred to keep rates unchanged.
Economic projections improve
In their new forecasts, Fed officials expect one additional rate cut in 2026 and another in 2027. However, views remain divided: seven officials favored keeping rates steady throughout 2026, while eight supported at least two cuts.
Markets welcomed the improved economic outlook. The FOMC now expects GDP to grow 1.7%, up from the 1.6% projection in September. For next year, the upgrade is even larger: 2.3% growth, up from 1.8%.
Inflation is projected at 2.9% this year, easing to 2.4% in 2026 and 2.1% in 2027. This marks a significant shift from three months ago, when the Fed expected inflation of 3% in 2025 and 2.6% in 2026.
As for unemployment, the forecast remains unchanged at 4.5%, a level the Fed views as the upper limit compatible with its dual mandate of stable prices and maximum employment.
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