The US Federal Reserve lowered interest rates on Wednesday for the third time this year but signalled it may slow the pace of easing in the months ahead, citing uncertainty over the economic outlook and growing divisions within its rate‑setting committee.
The central bank cut its benchmark rate by a quarter percentage point to a range of 3.50% to 3.75%, the lowest level in nearly three years and in line with market expectations. But Fed Chair Jerome Powell said policymakers were now “well positioned to wait and see how the economy evolves from here,” reviving language last used in late 2024 to indicate a potential pause.
Powell said officials would assess the “extent and timing of additional adjustments based on the incoming data, the evolving outlook, and the balance of risks,” noting that inflation remains above target even as the labour market shows signs of softening. “It’s a close call,” he said.
The Fed projected one more rate cut in 2026 and highlighted rising risks to employment. But the latest decision exposed widening disagreement inside the central bank. Three officials dissented: Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid favoured holding rates steady, while Governor Stephen Miran again pushed for a larger half‑point cut.
The 12‑member Federal Open Market Committee includes the seven governors, the New York Fed president and a rotating group of regional bank presidents.
Economists said the mixed signals reflect the competing pressures facing the Fed. “Inflation is well above the Fed’s target, but the job market appears to be softening,” said Mike Fratantoni of the Mortgage Bankers Association. “There is ammunition for both sides of the debate.”
Powell said rates are now “at the high end of the range of neutral,” a level that neither stimulates nor restricts economic activity. The Fed had previously described policy as “modestly restrictive,” a shift that could indicate less urgency to cut further.
Analysts expect the central bank to pause. “We expect the Fed will want to wait for this and prior cuts to feed through the economy,” said Ryan Sweet of Oxford Economics.
Fed officials also raised their 2026 growth forecast, trimmed inflation expectations and kept their unemployment outlook unchanged, though Powell warned that delayed federal data releases following a record‑long government shutdown could affect future projections.
Wednesday’s meeting was the last before a politically charged 2026, when Powell’s term ends in May and the White House prepares to appoint a new Fed chair. President Donald Trump has publicly pressured the central bank to cut more aggressively, saying the Fed could have “at least doubled” Wednesday’s reduction. He has also indicated he will evaluate Powell’s successor based on their willingness to slash rates immediately.
Trump’s chief economic adviser, Kevin Hassett, is among the leading contenders for the role. Meanwhile, Miran’s term expires in January, and Trump has attempted to remove Governor Lisa Cook, who is challenging the move in court.
Economist Gregory Daco of EY‑Parthenon said the combination of potential new appointments and a more hawkish voting rotation next year could widen divisions further. “Policy deliberations are likely to become even more divided,” he said.
