Fed Cuts Rates for Third Time Amid Policy Disagreements

The Federal Reserve delivered its third consecutive interest-rate cut in December 2025, , the lowest level in nearly three years. The decision, announced after the Federal Open Market Committee's two-day meeting, reflects the central bank's ongoing effort to balance its of price stability and maximum employment. However, the move was not without controversy—three members of the dissented, underscoring deep divisions within the committee.

The rate reduction is seen as a response to a weakening labor market, where job growth has slowed and unemployment has edged upward. At the same time, , though it has shown signs of moderation. These conflicting signals have led to an internal debate: while some policymakers favor further rate cuts to support employment, others caution against easing too quickly and reigniting inflationary pressures.

In its economic projections released during the meeting, , signaling a more cautious approach ahead. This outlook reflects uncertainty about the trajectory of inflation and employment, as well as the potential impact of external factors such as trade policy. Fed Chair Jerome Powell emphasized that the central bank would continue to monitor incoming data closely and adjust its stance accordingly. "We are well positioned to wait to see how the economy evolves," he stated in a press conference following the meeting.

The dissenting votes highlight the growing divergence of views within the FOMC. Two officials, including Chicago Federal Reserve President and Kansas City Federal Reserve President Jeff Schmid, voted to keep rates unchanged, arguing that inflationary pressures remain too high for additional easing. , a Trump appointee, took a more aggressive stance, . These differing perspectives indicate a committee struggling to find consensus amid a complex economic environment.

The broader economic implications of the rate cut are significant. Lower borrowing costs are expected to gradually reduce interest rates on mortgages, auto loans, and credit cards, potentially spurring consumer and business activity. However, the effectiveness of this stimulus will depend on whether the labor market continues to weaken and whether inflation remains stubbornly high. The Fed's forward guidance suggests that further cuts are not guaranteed, and policy will remain data-dependent in the coming months.

The political dimension of the Fed’s rate decisions has also intensified. With Trump pushing for lower rates to stimulate growth and secure re-election, the central bank faces increasing pressure to prioritize economic expansion over inflation control. The impending departure of Chair Jerome Powell in mid-2026 adds another layer of uncertainty, as Trump’s selection for his successor could influence the direction of future monetary policy.

Analysts project that the Fed’s policy path will remain constrained by these internal and external pressures. A divided FOMC, combined with the absence of complete economic data due to a recent government shutdown, complicates the central bank’s decision-making process. As the economy moves into 2026, the Fed will need to carefully navigate the delicate balance between supporting growth and maintaining price stability.