by Worthy News Washington D.C. Bureau Staff
(Worthy News) – The Federal Reserve on Wednesday approved its third consecutive interest rate cut, lowering the benchmark federal-funds rate by a quarter percentage point to a range of 3.5% to 3.75%, the lowest level since early 2022. But the decision—passed in a 9–3 vote, the most divided in six years—exposed unusually sharp disagreements over the path forward as policymakers wrestle with a slowing labor market and stubborn inflation.
The Federal Open Market Committee’s quarter-point reduction follows months of weakening job gains and a rise in unemployment to 4.4%, prompting Chair Jerome Powell to argue that the risks to employment now outweigh the risks of inflation.
“This was a close call,” Powell admitted. “We’re in a good place to wait and see how the economy evolves.”
Deepening Divide Inside the Fed
Wednesday’s split decision saw Governor Stephen Miran, a recent Trump appointee, push for a larger 0.5% cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid voted to hold rates steady.
The last time the central bank saw three dissents was in 2019—also driven by disagreement over the pace of rate reductions.
New internal projections show:
• A majority of officials expect no more than one cut next year, signaling caution
• Only six of 19 policymakers anticipate the year-end rate being above current levels
• Inflation is now forecast to ease to 2.4% in 2026, slightly lower than previously expected
• Growth expectations for 2026 rose to 2.3%, up from 1.8%
Still, Powell emphasized that the committee is navigating a rare and difficult environment: “Firm price pressures alongside a cooling labor market” — a trade-off the Fed has not faced in decades.
Labor Market Weakness Drives Decision
Powell suggested that after accounting for data overcounting caused by the fall government shutdown, job growth since April “may have been slightly negative.”
“A good part of the slowing likely reflects a decline in the growth of the labor force… though labor demand has clearly softened as well,” he said.
Fed officials also noted:
• Housing remains weak
• Consumer spending is stable
• Business data has been harder to interpret due to the October–November shutdown
Markets Rally on Hopes More Cuts Could Come
Wall Street responded enthusiastically.
• Dow Jones: +497 points (+1%)
• S&P 500: +0.7%
• Nasdaq: +0.3%
Investors welcomed Powell’s tone, which was less restrictive than feared, even as he signaled a higher bar for future cuts.
Long-term borrowing costs remain relatively elevated, with the 10-year Treasury yield at 4.163%, limiting relief for homebuyers.
Political Pressure Intensifies
The rate cut moves policy in President Trump’s preferred direction, but not quickly enough for a White House that is seeking aggressive easing amid complaints over high prices heading into the midterms.
Trump—openly frustrated that Powell didn’t cut earlier—said Tuesday he is close to naming a successor, with National Economic Council Director Kevin Hassett widely viewed as the frontrunner.
Trump’s new Fed appointee, Stephen Miran, has already tilted the Board more dovishly, advocating for deeper cuts.
Still, hawkish members warn that cutting too quickly risks reigniting inflation, which has hovered near 3%, above the Fed’s 2% target.
Fed to Restart Treasury Purchases
In a notable shift, the Fed announced it will resume buying $40 billion in Treasury bills starting Dec. 12, providing additional liquidity as markets adjust to the new rate environment.
What Comes Next?
Powell emphasized that after 75 basis points of cuts since September, the policy rate is now near its “neutral” level—neither stimulating nor restricting the economy.
Future cuts will depend heavily on:
• Next week’s October–November employment data
• December labor readings ahead of the January FOMC meeting
• Next week’s consumer-price index, showing whether inflation risks are re-emerging
“We’re well-positioned to wait and see,” Powell said, signaling that a January cut is not planned—but not ruled out.
Copyright 1999-2025 Worthy News. This article was originally published on Worthy News and was reproduced with permission.
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