The Federal Reserve cut its benchmark interest rate by a quarter point on Wednesday as policymakers weighed stubborn inflation pressures alongside clear signs that the labor market is losing strength. The Federal Open Market Committee lowered the target range for the federal funds rate to 3.5%–3.75%, the third reduction since September, amid visible disagreement within the group.

The vote came in at 9–3, reflecting differences over the size and timing of further easing. Some members argued for a deeper move, while others preferred holding the line. Financial markets shifted quickly as traders adjusted expectations toward a slower pace of cuts. New projections still point to one additional quarter-point reduction in 2026, matching September’s outlook. Officials also signaled that the recent 75 basis points of easing over four months may now give way to a pause.

Markets React as New Information Shapes Expectations

In the days leading up to the meeting, several policymakers publicly aired misgivings about the current trajectory. Their remarks drew heightened attention to the outcome of this meeting. Two members, Jeffrey Schmid and Austan Goolsbee, rejected the cut and favored keeping rates unchanged, while Stephen Miran supported a half-point reduction.

Chair Jerome Powell said payroll figures appear overstated by roughly 60,000 jobs per month since April. Revised data suggests the economy is losing about 20,000 jobs per month. He said the labor market no longer resembles a hot environment and carries increasing downside risk. The absence of several key data releases, delayed by the ongoing government shutdown, added further uncertainty around the true state of employment.

A Committee Divided Over the Path Forward

Powell said tariffs are the primary force keeping inflation above the central bank’s 2% goal. The committee noted that inflation picked up earlier in the year and remains slightly elevated. The “dot plot” showed little movement, with officials continuing to project one cut in 2026, even as markets anticipate two cuts next year. Ahead of Powell’s afternoon press conference, traders assigned a 24% probability to another cut in January.

The split vote added to a pattern of disagreement that has become more public in recent months. Recent remarks from several officials revealed a broad range of policy judgments, rarely seen during an easing cycle. Powell said the committee will continue evaluating data as it arrives, even as internal views diverge.

The shutdown delayed or suspended several major economic releases. Powell said the missing figures limit near-term clarity and complicate policy assessment. He added that a significant amount of new information will be available before the January meeting.

Liquidity Actions to Support Market Functioning

The Fed announced plans to purchase $40 billion in Treasury bills over the next 30 days, beginning December 12. Powell said the operation aims to maintain ample reserves and support smooth market functioning. He stressed that these purchases do not resemble quantitative easing and are not intended to stimulate economic activity. He also said the elevated level of purchases may continue for several months.

The committee said uncertainty around both inflation and employment remains high. It also said risks appear balanced across the Fed’s dual mandate. Members noted that upcoming data will shape the policy outlook heading into the next meeting.

Market analysts compared conditions before and after the announcement as traders digested Powell’s labor comments and the updated statement. Rate-cut expectations shifted throughout the afternoon. Traders and analysts now look ahead to Powell’s scheduled remarks for clearer signals on the direction of policy.

Uncertainty Builds Ahead of the Next Meeting

The decision came at a time when policymaking depends heavily on delayed or incomplete data, raising questions about how quickly the committee can adjust its plans. As new information arrives, officials expect it to guide the next moves and help clarify whether the economy is slowing more sharply than earlier reports suggested.

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What’s Next 

The Fed cut its benchmark rate and signaled a slower path ahead as officials balanced firm inflation pressures with weakening labor data. Divided views and the absence of economic releases shaped the meeting. Policymakers now await new figures that will guide their next decision.