Fed Says Will Start Reserve Management Treasury Bill Buying

A divided US Federal Reserve lowered interest rates on Dec 10 for a third consecutive time this year, flagging labour market concerns even as inflation remained elevated as President Donald Trump's tariffs bite.

The cut by a quarter percentage point brings rates to a range between 3.5 per cent and 3.75 per cent, the lowest in around three years.

The move was in line with market expectations, although the path ahead is less certain.

The Fed pencilled in at least one more rate reduction in 2026, and flagged heightened risks to employment as it announced the Dec 10 move.

But a rift within the central bank deepened with three officials voting against the modest reduction.

Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeffrey Schmid instead sought to keep rates unchanged.

Fed governor Stephen Miran backed a bigger, half-percentage-point cut.

The Fed's rate-setting committee consists of 12 voting members – including seven members of the board of governors, the New York Fed president and a rotation of reserve bank presidents – who take a majority vote in deciding the path of rates.

On Dec 10, Fed officials also lifted their 2026 GDP growth forecast to 2.3 per cent, from 1.8 per cent previously.

They eased their inflation expectations slightly for the next year, and kept unemployment rate expectations unchanged.

These projections could shift as the central bank grapples with a delay in federal economic data releases after a record-long government shutdown.

The Fed also faces a turbulent year ahead with a new chief arriving after Fed chairman Jerome Powell's term ends in May, while political pressure mounts.

Mr Miran's term expires in January, creating an opening among the Fed's top leadership, and Mr Trump has sought to free up another seat by attempting to fire Fed governor Lisa Cook this year.

Dr Cook has challenged her ousting and the case remains before the courts – she continues to carry out her role in the meantime.

Caution ahead

A contentious meeting that has multiple dissents is a "normal and healthy" sign, said Mr Ryan Sweet, of Oxford Economics.

Still, "more cuts now imply fewer later," he added in a note this week.

"The central bank will want time to gauge how past cuts are impacting the economy," he said.

Analysts said that a third consecutive rate reduction was likely, in order to manage risks to the labour market.

"The challenge facing the Fed next year is the potential jobless expansion, when GDP increases but employment gains are modest, at best," Mr Sweet said. "This leaves the economy vulnerable to shocks because the labour market is the main firewall against a recession."

The most recent available figures confirmed a slowdown in the jobs market, while the government shutdown from October to mid-November delayed publications of more updated official data.

The Fed pursues maximum employment and stable prices in adjusting interest rates, although these goals can sometimes be in conflict. Lower rates typically stimulate the economy while higher levels hold back activity and tamp down inflation.

Mr Powell is due to speak at a press conference after the announcement of the rate decision.

This week's gathering is the last before 2026, a year of key changes for the bank.

In a Politico interview published on Dec 9, Mr Trump signalled he would judge Mr Powell's successor on whether they immediately cut rates. Interviews for his choice are entering the final stages.

Mr Trump earlier hinted that he wants to nominate his chief economic adviser, Mr Kevin Hassett.

Other top contenders include former Fed official Kevin Warsh, Fed governors Christopher Waller and Michelle Bowman, and Rick Rieder of BlackRock.

Source: Straitstimes

Source: Reuters

The U.S. Federal Reserve cut interest rates on Wednesday in another divided vote, but signaled it will likely pause further reductions in borrowing costs as officials look for clearer signals about the direction of the job market and inflation that "remains somewhat elevated."

New projections issued after the U.S. central bank's two-day meeting showed the median policymaker sees just one quarter-percentage-point cut in 2026, the same outlook as in September, with inflation expected to slow to around 2.4% by the end of next year even as economic growth accelerates to an above-trend 2.3% and the unemployment rate remains at a moderate 4.4%.

"In considering the extent and timing of additional adjustments to the target range for the federal funds rates, the Committee will carefully assess incoming data," the rate-setting Federal Open Market Committee said in language that in the past has been used to signal a pause in policy actions - an outlook at odds with market expectations of two rate cuts next year.

The decision to lower the benchmark policy rate by a quarter of a percentage point to the 3.50%-3.75% range drew three dissents, with Chicago Fed President Austan Goolsbee joining Kansas City Fed President Jeffrey Schmid in arguing the policy rate should be left unchanged, and Fed Governor Stephen Miran again advocating a larger half-percentage-point reduction.

How monetary policy evolves from here, heading into a midterm U.S. election year that could revolve around the performance of the economy and with President Donald Trump urging sharper reductions, will now hinge on data that is still lagging from the impact of the 43-day federal government shutdown in October and November.

SOLID 2026 ECONOMIC OUTLOOK

The projections are in a sense optimistic: Interest rates may remain higher than anticipated, but the economy is seen growing faster even as inflation falls and the jobless rate also eases lower.

Renovations continue at the Federal Reserve Board building in Washington, D.C., U.S., November 14, 2025. REUTERS/Elizabeth Frantz/File Photo

But the latest policy statement and projections were crafted without the benefit of recent job and inflation reports, and instead relied on "available indicators," which Fed officials have said include their own internal surveys, community contacts and private data.

The most recent official data on unemployment and inflation is for September, and showed the unemployment rate rising to 4.4% from 4.3%, while the Fed's preferred measure of inflation also increased slightly to 2.8% from 2.7%. The Fed has a 2% inflation target, but the pace of price increases has risen steadily from 2.3% in April, a fact at least partly attributable to the pass-through of rising import taxes to consumers and a driving force behind the central bank's policy divide.

Job and inflation data for November will be released next week, followed later by a detailed report of economic growth for the third quarter.

"Available indicators suggest that economic activity has been expanding at a moderate pace," the Fed's statement said. "Job gains have slowed this year, and the unemployment rate has edged up through September," it said, dropping a reference to the jobless rate as "low."

The projections showed a core of six policymakers preferring no rate cut this year, and seven anticipating no further cuts in 2026.

The median projection is for one additional quarter-percentage-point cut in 2027 as well as inflation continues to subside towards the central bank's 2% target.

Source: Reuters

Source: Yahoo Finance

Source: Reuters

The Federal Reserve is widely expected to announce a quarter percentage point, or 25 basis point, cut to its overnight lending rate when the policymakers issue their decision at 2 p.m. ET on Wednesday. That reduction would bring the benchmark rate to a targeted range of between 3.50% to 3.75%.

While traders feel fairly certain of that outcome, there are other key items to watch that are far less predictable, including what might be ahead for next year. The rate-setting FOMC is split between members who favor cuts to head off further weakness in the labor market and those who think easing has gone far enough and threatens to aggravate inflation.

On top of that, inflation worries persist.

"Inflation is not back to 2% so they're going to need to keep policy somewhat restrictive if they are going to put downward pressure on inflation," former Cleveland Fed President Loretta Mester said Tuesday on CNBC. "Right now, inflation is pretty well above the goal, and it's not just all tariff-driven."

Traders will be scanning the Fed's statement and watching Fed Chair Jerome Powell's press conference at 2:30 p.m. for hints about the next steps.

Source: CNBC