🚨 The Great Divide: Fed Cuts Rates, But Policy Path for 2026 Is a War Zone!
The Federal Reserve just wrapped up its final 2025 FOMC meeting, delivering a widely anticipated rate cut that signals a cautious tilt toward stimulating the slowing job market. But don't expect smooth sailing next year—the Fed's own policymakers are in deep disagreement over what comes next!
What Just Happened? (The Cut)
The FOMC voted to reduce the target range for the federal funds rate by 25 basis points (bps), bringing it to 3.50% to 3.75%.
✅ Why the Cut? Chair Jerome Powell cited a "shift in the balance of risks," with a particular focus on the recent weakening in the labor market (slowing job creation and rising unemployment).
The Shocking Part: A Divided 2026 Outlook
While the rate cut was consensus, the "dot plot" (the summary of officials' future rate projections) for 2026 shows a startling lack of
unity.
The committee is split three ways on policy for next year:
4 Officials: See rates staying flat in the current 3.50%-3.75% range.
4 Officials: Expect only a modest 25 bps cut.
4 Officials: Project a deeper 50 bps cut.
🔥 The Takeaway: This deep division suggests major volatility is ahead. Traders should brace for a data-dependent Fed that could surprise markets with either a pause or an accelerated pace of cuts, depending on every unemployment and inflation report released next year.
Powell's Balancing Act
Fed Chair Powell summarized the complicated environment:
"Inflation remains somewhat elevated... [and] has picked up since earlier in the year," largely due to the impact of recent tariffs on goods prices.
In essence, the Fed is easing to support growth and jobs, while simultaneously trying to manage persistent, tariff-driven inflation. He concluded that the Fed is mostly "on hold" for now, believing the current rate is close to the "neutral" level.
