Fed Cuts Rates by 25 Points

The closely watched “dot plot” of individual officials’ expectations on rates indicated just one cut in 2026 and another in 2027 before the federal funds rate hits a longer-run target around 3%. Those projections were unchanged from the September update, but the plot reflected divisions within the committee about where rates should head.

Along with the two “no” dovish votes on the rate cut, four other nonvoting meeting participants registered “soft dissents” indicating that they did not go along with the decision. Seven officials also indicated they want no cuts next year. FOMC meetings feature 19 participants among the governors and regional presidents, 12 of whom vote.

On the economy, the committee raised its collective view of gross domestic product growth for 2026, boosting its September projection up by half a percentage point, to 2.3%. The committee continues to expect inflation to hold above its 2% target until 2028.

On inflation, prices remain stubbornly high, with the Fed’s preferred gauge putting the annual rate at 2.8% in September, the most recent month for which data is available. While that’s considerably off the peaks of a few years ago, it’s still well north of the central bank’s 2% target.

The moves come at a sensitive time for the Fed.

As he seeks to maintain consensus among policymakers, Powell is nearing the end of his second term as chair. He has just three meetings left before he makes way for President Donald Trump’s nominee.

Trump has signaled he will litmus test his choice, using a preference for lower rates as a barometer, rather than someone committed to the Fed’s dual mandate of stable prices and full employment. The president told reporters Tuesday evening he expects to make a choice soon.

Predictions markets are betting the nominee will be National Economic Council Director Kevin Hassett, who is viewed in some corners of the financial markets as a Fed chair who will seek to do Trump’s bidding. As of Wednesday morning, Kalshi had Hassett’s chances of getting the nod at 72%, with former Fed Governor Kevin Warsh and current Governor Christopher Waller trailing far behind.

Fed officials have had to operate in an environment where much of the official data they use in decision-making either has been trickling in well behind schedule or missing entirely, due to the government shutdown that lasted about six weeks, until Nov. 12.

What data they have seen has indicated a low-hire, low-fire labor market, with employers reluctant both to add to payrolls or to lay off large numbers of workers. However, recent signs from unofficial data point to heavier jobs reductions to come, with announced layoffs through November topping 1.1 million, according to employment placement firm Challenger, Gray & Christmas.