Divided US Fed makes third straight rate cut on jobs risks

• The quarterly cut takes interest rates to a range of 3.5-3.75%.
• Three Fed officials disagree, exposing the deepest political rift.
• 2026 GDP forecasts increased, inflation expectations eased.

The divided U.S. Federal Reserve cut interest rates on Wednesday for the third straight time this year, exacerbating worries about the labor market even as inflation remained elevated as President Donald Trump’s tariffs bite.

The cut of a quarter of a percentage point brings interest rates to a range between 3.5% and 3.75%, the lowest in about three years.

The move was in line with market expectations, although the path ahead is less certain.

The Fed moved ahead with at least one more rate cut next year and pointed to heightened risks to jobs as it announced Wednesday’s move.

But a rift within the central bank deepened with three officials voting against the modest cut.

Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid tried to keep interest rates unchanged. Fed Governor Stephen Mirran has advocated a larger cut of half a percentage point.

The Fed’s rate-setting committee is made up of 12 voting members — including seven board members, the New York Fed president and a rotating group of reserve bank presidents — who receive a majority vote to decide the course of interest rates.

On Wednesday, Fed officials also raised their forecast for GDP growth for 2026 to 2.3 percent, from 1.8 percent previously.

They slightly lowered their expectations for inflation next year and kept expectations for the unemployment rate unchanged.

Those forecasts could shift as the central bank faces a delay in federal economic data releases after a record government shutdown.

The Fed also faces a tumultuous year ahead with a new chief coming in after Fed Chair Jerome Powell’s term ends in May, while political pressure mounts.

Mirran’s term expires in January, creating an opening among the Fed’s top leadership, and Trump has sought to free up another position by attempting to fire Fed Governor Lisa Cook this year.

Cook contested her ouster and the case remains before the courts — she continues to perform in her role in the meantime.

Be careful ahead

A contentious meeting that has multiple disagreements is a “normal and healthy” sign, said Ryan Sweet of Oxford Economics.

But “more cuts now mean less later,” he added in a note this week.

“The central bank will need time to gauge how previous cuts affect the economy,” he said.

Analysts said a third straight rate cut was likely to manage labor market risks.

“The challenge the Fed will face next year is the potential expansion of unemployment, when GDP is growing but employment gains are modest, at best,” Sweet said. “This leaves the economy vulnerable to shocks because the labor market is the main bulwark against a recession.”

The latest available data confirmed a slowdown in the labor market, while the government shutdown from October to mid-November delayed the release of more up-to-date official data.

The Fed pursues maximum employment and stable prices in adjusting interest rates, although these goals can sometimes conflict. Lower interest rates usually stimulate the economy, while higher levels curb activity and reduce inflation.

Powell is due to speak at a news conference after the rate decision is announced.

This week’s rally is the last before 2026, a year of key changes for the bank.

In an interview with Politico published Tuesday, Trump indicated he would judge Powell’s successor on whether to cut interest rates immediately. Interviews for his selection are entering the final stage.

Trump earlier hinted that he wants to nominate his chief economic adviser, Kevin Hassett.

Other top contenders include former Fed official Kevin Warsh, Fed governors Christopher Waller and Michelle Bowman and BlackRock’s Rick Rieder.