The US Federal Reserve has lowered interest rates for the third time this year, even as disagreements grow among policymakers. The latest 0.25% cut brings the benchmark lending rate to a range of 3.50% to 3.75%, the lowest level in three years. The move reflects the Fed’s concern about a weakening job market, despite inflation still running above target.
However, the direction of future policy remains uncertain. Fed officials are split on how to balance two major economic risks: slowing employment growth and persistent inflation pressures.
Diverging Opinions Inside the Federal Reserve
The vote to cut rates was not unanimous, highlighting the widening divide within the central bank.
Three policymakers dissented:
- Stephen Miran pushed for a deeper 0.5% rate cut.
- Austan Goolsbee from the Chicago Fed and Jeffrey Schmid from the Kansas City Fed both preferred keeping rates unchanged.
This disagreement comes at a time when a lengthy US government shutdown created a data blackout, leaving economists without key economic indicators for weeks. Still, concerns about rising unemployment appear to outweigh inflation worries for now.
A Slowing Labour Market Takes Priority
The unemployment rate rose from 4.3% to 4.4% in September, according to delayed Labor Department data. The Fed hopes that lower borrowing costs will encourage business investment and help support hiring.
Earlier in the year, inflation fears dominated the economic narrative, especially after the administration imposed sweeping tariffs on major trading partners. While inflation reached 3% in September, many recent readings have been milder, giving the Fed more room to support the job market.
What the Fed’s Forecasts Show
The Fed’s latest dot plot—its anonymous economic projection—indicates expectations for one more rate cut in 2026, the same outlook shared in September. Policymakers will gain fresh insight next week, with new data releases on inflation and the labour market for November. Any signs of renewed weakness could strengthen calls for further easing next year.
Fed Leadership Could Soon Change
This rate cut also comes as the White House prepares to announce President Trump’s nominee to replace Jerome Powell, whose term ends in May.
Kevin Hassett, a longtime Trump adviser and conservative economist, is considered the frontrunner. His close ties to the president have raised questions about how independently he would lead the central bank.
Others reportedly in the running include:
- Kevin Warsh, economist
- Christopher Waller, current Fed Governor
- Scott Bessent, Treasury Secretary
Analysts warn that whoever is chosen must demonstrate independence to avoid market anxiety and increased volatility.
