The US Federal Reserve lowered its policy rate by 25 basis points on Wednesday, setting a range of 3.5% to 3.75%. This is the third consecutive cut since September, but it comes with sharp dissent within the Federal Open Market Committee (FOMC). Three members voted against, a record since 2019: Stephen Miran argued for a larger cut, while Jeffrey Schmid and Austan Goolsbee opposed any reduction. The split highlights tensions between those favoring support for employment and advocates of a more restrictive stance in the face of inflation still above the 2% target.
Despite this latest cut, the monetary policy outlook appears more cautious. The FOMC's "dot plot" anticipates one additional cut in 2026 and another in 2027, aiming to stabilize rates at around 3%. The Fed's statement reprises language already used in 2024, suggesting a possible slowdown in the easing cycle. At the same time, the Fed raised its growth forecast for 2026 to 2.3%, but expects inflation to remain above target through 2028. In September, the PCE index was still up 2.8% y-o-y.
Another notable shift: the Fed will resume Treasury purchases, with $40bn injected as soon as Friday, to stabilize short-term funding markets. This pivot comes a few months before the end of Jerome Powell's term, whose successor could soon be announced by President Trump. He has said that he would favor a profile supportive of low rates. Kevin Hassett is currently the favorite, with a 72% chance of nomination according to the Kalshi platform. The backdrop remains uncertain, amid partial economic data after a prolonged shutdown and a labor market losing momentum.
