The US Federal Reserve delivered its third consecutive interest rate cut on Wednesday, lowering rates by a quarter percentage point to a range of 3.5% to 3.75%, the lowest level in nearly three years. The central bank signaled growing concerns about the weakening labour market, even though inflation remains elevated due to President Donald Trump’s ongoing tariffs.
The decision matched market expectations, but policymakers indicated uncertainty about the economic path ahead. The Fed also projected at least one more rate cut next year as job market risks continue to mount.
However, divisions within the central bank deepened. Three members voted against the move: Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid preferred no change, while Fed Governor Stephen Miran pushed for a larger half-point reduction.
The 12-member Federal Open Market Committee includes the board of governors, the president of the New York Fed, and rotating regional presidents who collectively vote on interest rate decisions.
In addition to cutting rates, the Fed raised its 2026 GDP growth forecast from 1.8% to 2.3%. Inflation expectations for the coming year were slightly reduced, while unemployment projections remained steady. These forecasts may shift due to delays in federal economic data caused by the recent record-long government shutdown.
The central bank also faces a politically charged year ahead. With Jerome Powell’s term ending in May, a new Fed chair will be appointed during a period of intense pressure. Miran’s upcoming departure in January will open another key leadership position. Meanwhile, President Trump’s attempt to remove Governor Lisa Cook remains tied up in court.
Caution in a Divided Central Bank
Economists say multiple dissents are not unusual and can reflect healthy debate. Still, experts warn that cutting rates aggressively now could limit future flexibility. The Fed needs time to observe how previous rate reductions affect the broader economy.
Analysts note that the Fed likely felt compelled to deliver a third rate cut to protect the labour market. The biggest challenge next year may be a “jobless expansion” — a scenario where GDP grows but employment barely improves, leaving the economy vulnerable to disruption.
Recent figures already point to a slowdown in hiring, worsened by delayed government reporting due to the shutdown. Since the Fed aims to balance maximum employment with stable prices, managing these conflicting goals has become increasingly difficult.
