WASHINGTON (TNND) — A divided Federal Reserve will meet this week where officials are expected to move forward with another small cut as they face a tricky dynamic with an economy sending mixed signals that has created a rift on what problems to prioritize while keeping the economy on track.
Despite initial warnings another cut wasn’t guaranteed after the October meeting, consensus has broadly shifted to one final rate cut to close out the year to buy officials more insurance over a struggling labor market. The decision is likely to be fiercely debated among officials who are trying to strike a balance between stalling job growth and persistently elevated inflation.
The divide among the central bank is being driven by conflicting pressures that weigh in opposition to the dual mandate of maximum employment and stable prices. Lowering rates too quickly risks a rush of consumer and business activity that may feed into higher prices, while keeping them restrictive could weigh down the economy and send unemployment higher.
Officials are coming into the meeting with an unprecedented void of data due to the record 43-day government shutdown that shuttered stats agencies and denied them a comprehensive view on the state of the economy, adding to the challenges of correctly calibrating monetary policy. The limited government data that has been released is stale after the delay, creating a vacuum that appears to have led officials to latch onto their position on how to handle the December rate decision.
The latest reading of the Fed’s preferred inflation measure, the personal consumption expenditures index, showed “core” inflation increased 2.8% in September, a small decline from August. They will not receive more current data until after this week’s meeting.
The labor market performed stronger than anticipated in September with 119,000 jobs added, reversing a loss of 4,000 the month prior. Job creation totals have been volatile in the second half of the year and unemployment has crept up to 4.4% — historically low but still the highest level in four years. Some economists have also been concerned about the uneven rate of job creation between industries with most outside of healthcare seeing declines this year.
Private-sector data has painted a more worrisome picture of the labor market with increased layoffs and reduced hiring, though the reports are not as encompassing as the federal government’s.
Markets have come to expect unanimous decisions from FOMC meetings, a theme that reversed course in October with two dissents, the first with more than one vote against a rate decision since 2019. There have not been three or more dissents at a meeting since 2019, which has only happened nine times since 1990.
Dissent is expected to become more common, including in this week’s decision, as officials on both sides of the debate have laid out their case in speeches with little data to shift viewpoints.
“Given the upcoming rotation of voting members and the potential appointment of Kevin Hassett as Fed Chair, the increasingly divided policy views within the Committee point to one clear conclusion: polarization will become a defining feature of the Fed’s policy landscape,” said Gregory Daco, chief economist at EY-Parthenon.
Five of the 12 voting members of the Federal Open Markets Committee have voiced skepticism or outright opposition to further easing over nagging inflation that has not been at their 2% target since the post-pandemic surge. Stephen Miran, who is on leave from the White House Council of Economic Advisers to serve out the remainder of departed governor Adriana Kugler’s term, has advocated for more aggressive half-point cuts since being confirmed to the position and may dissent from the anticipated quarter-point reduction.
Officials will offer some insights into their view of where the economy is heading with new projections inflation, GDP and unemployment along with expectations for rate decisions in the coming year, though the projections could shift significantly due to the delay in updated data. Many economists are predicting the Fed will cut rates two more times in 2026.
Federal Reserve Chairman Jerome Powell walks off after a news conference following the Federal Open Market Committee meeting, Wednesday, Sept. 17, 2025, at the Federal Reserve Board Building in Washington. (AP Photo/Jacquelyn Martin)
What Powell tells reporters in his post-meeting press conference will also be heavily scrutinized for clues about how the central bank plans to move forward. After the October meeting, he said a cut at this week’s meeting was “not a foregone conclusion,” a tone he is expected to repeat on Wednesday.
Fed chair Jerome Powell has been under pressure from the White House to move more aggressively to cut rates. Frustrations over the central bank’s moderate pace of cuts has led President Donald Trump to publicly suggest he was thinking about firing Powell, whose term comes to an end next year.
But Trump’s replacement for Powell, who he is expected to name in the coming weeks, will face a challenging dynamic delivering an aggressive reduction cycle. Many of the regional Federal Reserve bank presidents who will be voting members of the FOMC have signaled opposition to further easing and a higher bar to cuts.
Even officials who have backed the current pace of rate cuts have pulled back expectations on the pace to continue next year.
“My concern is mainly labor market, in terms of our dual mandate. So I’m advocating for a rate cut at the next meeting,” Fed governor Christopher Waller said during an appearance on Fox Business last month. “You may see a more of a meeting-by-meeting approach once you get to January.”
