Fed cuts interest rates but signals long pause as policymakers remain sharply divided
2 min read
U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee (FOMC), at the U.S. Federal Reserve in Washington, D.C., U.S., December 10, 2025.
| Photo Credit:
REUTERS/Kevin Lamarque
The Federal Reserve reduced interest rates amid internal disagreements on Wednesday, signaling limited near-term easing ahead. Policymakers await clearer signals from softening employment indicators, persistently elevated inflation trends, and economic projections anticipating stronger 2026 growth.
New economic forecasts showed persistent division about monetary policy direction through 2026 and beyond. While maintaining the median expectation for one quarter-point cut next year, projections revealed stark differences among officials. Updated language in the policy statement reinforced a cautious stance at odds with financial markets expecting two reductions next year.
Economic projections indicated inflation cooling to 2.4% by late 2026 alongside accelerated 2.3% GDP expansion and stable 4.4% unemployment. This outlook aimed to ease concerns about potential stagflation despite three dissenting votes during the decision. Chicago Fed’s Austan Goolsbee and Kansas City Fed’s Jeffrey Schmid opposed any cut while Governor Stephen Miran advocated doubling the reduction.
FED CHAIR PUSHES PATIENT STANCE
“Having reduced rates significantly this year, we’re well positioned to monitor economic developments before determining next steps,” stated Chair Jerome Powell during post-meeting remarks. While leaving January options open, Powell emphasized no predetermined actions given incomplete economic data following October-November’s federal shutdown.
Market reactions saw equity gains alongside lower Treasury yields and a weakened dollar. Analysts described the outcome as cautiously dovish amid persistent internal divisions. “Six officials opposed cutting rates entirely today—demonstrating how deeply split this committee remains,” noted B. Riley strategist Art Hogan.
DATA GAPS COMPLICATE OUTLOOK
Policy deliberations relied heavily on unofficial indicators due to delayed government statistics, including missing November employment and inflation reports. The Fed acknowledged moderate economic expansion but noted weakening labor market momentum in available data. Unemployment references were revised downward compared to prior statements.
Long-range forecasts suggested gradual policy normalization, with median projections indicating one additional rate cut during 2027 as inflation approaches the Fed’s 2% target. However, officials emphasized considerable uncertainty surrounding these estimates given forthcoming leadership changes—President Trump will nominate Powell’s successor in coming weeks.
“With missing data, committee disagreements and imminent leadership transition, the Fed appears inclined toward prolonged policy stability absent sharper labor market deterioration,” observed BlackRock executive Rick Rieder, listed among potential Powell replacements.
Published on December 11, 2025
