A divided Fed cuts interest rates again as economic concerns persist

The Federal Reserve on Wednesday cut its influential interest rate for the third time this year as it tries to balance rising inflation with a labor market that appears to have weakened in recent months.

The move could provide a boost to the U.S. economy, but Fed Chair Jerome Powell has recently warned that there is no risk-free path for the central bank to take.

Powell reiterated the point on Wednesday.

“There is no risk free path for policy as we navigate this tension between our employment and inflation goals,” he said. “Our obligation is to make sure that a one time increase in the price level does not become an ongoing inflation problem.”

The cut of a quarter point — a cautious move by the Fed — could make it cheaper for average Americans who hold a mortgage, have credit card debt or need to take out or refinance a personal loan. It would also help businesses borrow at lower rates.

The Fed chair said the committee decided to cut rates today because of a number of factors.

“First of all, gradual cooling in the labor market has continued,” he said. “Unemployment is now up three tenths from June through September.”

Powell also said the central bank believes that there has been an “overstatement” in recent jobs numbers of about 60,000 jobs. In his view, data showing that payrolls have been pacing at about 40,000 jobs added per month are, in fact, really pacing at 20,000 jobs lost per month.

The rate cut had been anticipated by investors, but some doubt remained after a few members of the Fed’s committee expressed concerns that lower interest rates could push consumer prices higher.

The Fed’s “target range” is now set at its lowest level since late 2022.

Three Fed officials dissented against the cut. Fed governor Stephen Miran, who is on temporary leave from the White House, voted for a half point cut. Regional presidents Jeff Schmid and Austan Goolsbee voted for no change to rates at all.

The three dissents were the most for the normally united committee since September 2019.

In economic projections released alongside Wednesday’s interest rate statement, Fed officials said they saw growth picking up next year more than previously expected, to 2.3%. Fed officials also projected one more interest rate cut next year and another in 2027.

Language used in the Fed’s statement indicated that Wednesday’s cut would likely be the last for now, at least until after its next meeting on Jan. 27-28.

Powell said essentially the same thing. “We are well positioned to wait to see how the economy evolves,” he said in response to a question asking if the Fed is now on hold.

Fed officials also said that they expected inflation to decline to 2.4% next year, down from their previous expectation of 2.6%.

“Available indicators suggest that economic activity has been expanding at a moderate pace,” the Fed said in a statement. “Job gains have slowed this year, and the unemployment rate has edged up through September.”

“Inflation has moved up since earlier in the year and remains somewhat elevated,” members of the Fed’s open market committee added.

Affordability has remained a major issue across the U.S., with President Donald Trump — who has repeatedly and vociferously called for the Fed to continue to cut interest rates — recently downplaying those concerns after having campaigned on them.

Doubt about the overall economic picture lingers thanks in part to the fog of a data blackout, the result of the prolonged federal government shutdown this fall. Meanwhile, alternative data has consistently pointed to a slowing labor market. The payroll processor ADP’s most recent monthly private jobs report showed small businesses shed a whopping 120,000 jobs in November.

The Bureau of Labor Statistics has released the September jobs report, but the October report was canceled altogether, and the November report remains a work in progress. The delayed November jobs report is set to be released Dec. 16.

Like the jobs report, October’s consumer price index was canceled. And all-important November inflation data will also arrive late, on Dec. 18.

“Very little data on inflation have been released since our meeting in October,” Powell said at a press conference in Washington.

“Inflation for goods has picked up, reflecting the effects of tariffs,” he said. But, he noted, the services component of the economy is experiencing disinflation.

Stocks jumped to their highs of the day after the Fed’s announcement, with the S&P 500 rising about a quarter of a percent. The Fed also announced Wednesday that it would buy billions of dollars of U.S. Treasury bonds per month, a move aimed at bolstering the plumbing of the financial system. This also helped push stocks higher.