Fed Cuts Rates Again With Rare Three-Way Split: What It Means for 2026

The US Federal Reserve delivered its third straight interest rate cut, lowering the federal funds rate to 3.5%–3.75%, while signaling only one cut expected in 2026. The decision, however, revealed the deepest internal split among Fed officials in six years — a sign of rising uncertainty over inflation and labor market risks.

Below is a simplified, SEO-friendly breakdown of the Fed’s latest move and its implications.

Fed Cuts Rates but Signals Caution Ahead

The Federal Open Market Committee voted 9–3 in favor of a quarter-point cut — the first time since 2019 that three officials dissented on a single decision.

• Two officials wanted no cut

• One official pushed for a bigger, half-point cut

Fed Chair Jerome Powell said the central bank has likely done enough to ease pressure on the weakening labor market while still keeping monetary policy restrictive enough to cool inflation.

“This further normalization should help stabilise the labour market while inflation trends back toward 2% once tariff effects fade,” Powell said.

He avoided committing to future cuts but noted no policymaker sees a rate hike as the base case.

Markets React: Stocks Up, Yields Down

Following the announcement:

• S&P 500 climbed 0.7%, closing just shy of an all-time high

• 10-year Treasury yields slipped to around 4.15%

• The dollar weakened

Investors also dialed back expectations for 2025, now pricing in two cuts instead of three.

Why the Fed Is Divided: Jobs vs Inflation

The split reflects a deeper debate inside the Fed:

Labour market concerns

Unemployment has risen to 4.4%, up from 4.1% in June.

Inflation still sticky

Core inflation sits at 2.8%, above the Fed’s 2% target.

On top of that, the government shutdown has delayed critical economic data, further complicating the picture.

Fresh Economic Projections for 2026–2027

Fed officials delivered updated forecasts:

• One cut expected in 2026

• One more in 2027

• Growth outlook for 2026 revised up to 2.3% (from 1.8%)

• Inflation forecast for 2025 trimmed to 2.4%

Notably, policymakers remain split:

• 7 officials want to keep rates unchanged for all of 2026

• 8 officials support at least two cuts

New Treasury Purchases Start Dec. 12

The Fed also approved purchases of short-term Treasury securities to maintain an “ample” level of bank reserves — a move widely expected by Wall Street to support liquidity in overnight funding markets.

Since 2022, the Fed has been shrinking its balance sheet. The new purchases mark a tactical shift aimed at preventing money-market disruptions.

Political Pressure in the Background

The decision lands shortly after President Donald Trump revealed he has chosen a successor to Powell, with an announcement expected early next year. The White House has repeatedly criticized the Fed for not cutting rates more aggressively, raising concerns about the central bank’s independence.

Bottom Line

The Fed delivered another cut, but deep divisions and data uncertainty mean the path ahead is far from settled.

For now, markets interpret this as:

• Supportive for risk assets

• A softer outlook for the dollar

• A cautious but continued normalization path

But with inflation still above target and the labor market softening, the next moves will depend heavily on incoming data.