Fed Projects One Cut in 2026

Goldman Sachs Vice Chair and former Dallas Fed President Robert Kaplan discusses the Fed's latest 25 basis point rate cut and AI's impact on the economy.

Federal Reserve officials delivered a third consecutive interest-rate reduction and maintained their outlook for just one cut in 2026.

The Federal Open Market Committee voted 9-3 Wednesday to lower the benchmark federal funds rate by a quarter point to a range of 3.5%-3.75%. It also subtly altered the wording of its statement suggesting greater uncertainty about when it might cut rates again.

Speaking to reporters after the meeting, Chair Jerome Powell suggested the Fed had now done enough to bolster the economy against the threat to employment while leaving rates high enough to continue weighing on price pressures.

“This further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2% once the effects of tariffs have passed through,” he said.

When asked if it were a foregone conclusion that the Fed’s next move would be a cut, Powell demurred, but added that he didn’t see a rate hike as any official’s base case.

Investors reeled in their expectations for rate cuts next year, from three to two. The S&P 500 index of US stocks closed 0.7% higher on the day, just short of all-time highs, and the yield on 10-year US Treasury notes fell modestly to about 4.15%.

Wednesday’s dissents and the rate projections highlight divisions among policymakers that have emerged over whether weakness in the labor market or stubborn inflation represent the larger danger to the US economy.

In their October statement, the FOMC described what it would take into account “in considering additional adjustments” to their benchmark. In Wednesday’s statement the committee reverted to language used last December — just before a pause in rate cuts — to say “in considering the extent and timing of additional adjustments.”

The result marked the first time since 2019 that three officials voted against a policy decision, with dissents on both ends of the policy spectrum.

Two regional Fed presidents — Austan Goolsbee from Chicago and Jeff Schmid from Kansas City — voted against the decision, preferring to keep rates unchanged. Governor Stephen Miran, whom Trump appointed to the central bank in September, dissented again in favor of a larger, half-point reduction.

Fed officials also authorized fresh purchases of short-term Treasury securities to maintain an “ample” supply of bank reserves.

The decision to lower rates comes after divisions on the committee spilled into public view in recent weeks. Following the last rate cut in October, several officials warned of persistent inflation, indicating their hesitancy to support another reduction. Others remained focused on a weakening labor market, calling for at least one more cut.

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