Fed keeps options open but dissents point to January hold

Jerome Powell on Wednesday said the Federal Reserve is well placed to wait to see how the economy evolves after the US central bank cut interest rates as expected.

The quarter point cut, the third in successive meetings, takes the Federal Reserve's target range for the federal funds rate to 3.50%-3.75%.

Speaking at a press conference following the decision, the Fed Chair suggested interest rates are close to neutral but that a deluge of incoming data will inform future policy decisions.

The Fed funds rate is now "within a range of plausible estimates of neutral, and leave us well-positioned to determine the extent and timing of additional adjustments" Powell told reporters.

Nine of the 12-strong Federal Open Market Committee's voters backed the rate reduction.

Kansas City Fed president Jeff Schmid and Austan Goolsbee of the Chicago Fed pressed the case for the status quo, while Trump ally Stephen Miran once more supported a jumbo half-point move.

In October, while the Fed lowered rates, Schmid voted to leave rates on hold, and Miran supported a 50 basis points cut.

In addition, Samuel Tombs at Pantheon Macroeconomics said six participants indicated via their summary of economic projections dots that they would have preferred unchanged policy at this meeting.

"Among these 'soft' dissenters likely are three of the four regional Fed Presidents who will become voting members in January, namely, Beth Hammack, Neel Kashkari and Lorie Logan. This suggests the next Fed Chair will have a hard time corralling the Committee’s participants to agree to further reductions in the funds rate next year," Tombs said.

Powell took a positive view on the dissents on the FOMC, saying the "discussions are as good as any in my 14 years at the Fed," adding it's rare for the Fed's two goals to be in such "tension".

"Interestingly, everyone around the table at the FOMC agrees that inflation is too high and we want it to come down, and agrees that the labour market has softened and that there is further risk. Everyone agrees on that. Where the difference is, is how do you weight those risks and what does your forecast look like?," he said.

"There is no risk free path for policy as we navigate this tension between our employment and inflation goals," Powell said, adding "we're well positioned to wait and see" where the economy evolves from here, after today's move.

But he emphasised that the discussion now is about whether to stop cutting here, or bring down rates a little or "more than a little" further.

"A rate hike is not anyone's base case," Powell said, adding "some feel we should stop here and wait."

Analysts at TD Economics detected a hawkish tilt.

"While the FOMC ultimately decided to push forward with another cut, the statement and accompanying projections had a hawkish tilt, suggesting a higher bar for future rate cuts," they wrote.

But the broker noted it's "hard to have much conviction" in that call in the absence of timely economic data.

"November's employment and CPI reports will shed some much-needed light on recent hiring and inflation trends and could materially shift our view and market pricing on the extent and timing of further policy easing," TD Economics added.

Powell said Wednesday's decision reflected a continued gradual cooling in the labour market and evidence that services inflation is coming down, offset by goods inflation in sectors hit by tariffs.

This suggests progress has been made in non-tariff inflation, he said, adding the data "will tell us whether we are right or not".

The Fed said uncertainty about the economic outlook remains "elevated" with economic activity expanding at a moderate pace, while downside risks to employment have risen in recent months.

Job gains have slowed this year, and the unemployment rate has edged up through September, the statement said, with recent indicators consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated, it added.

In the accompanying SEP projections, Fed officials projected one rate cut in both 2026 and 2027, unchanged from forecasts made in September.

In addition, officials forecast stronger economic and cooling inflation in the year ahead.

Officials now expect the US economy to grow 2.3% in 2026, up from 1.8% forecast in September, and then expand 2.0% and 1.9% in 2028 and 2029, up from 1.9% and 1.8% previously.

Core PCE inflation, the Fed's preferred inflation gauge, is forecast to cool to 2.5% in 2026, below September's forecast of 2.6%, before easing further to 2.1% and 2.0% in 2027 and 2028.

Tombs at Pantheon Macroeconomics still looks for a further 75bp reduction in the funds rate in 2026, with 25bp easings in March, June and September.

"Personnel changes on the Committee bring the potential for a faster and further decline in rates," he believes.