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Fed cut likely today, but guidance may slam the door on early-2026 moves
The Fed is set to deliver a third straight cut, but a split committee, sticky inflation and missing data raise the odds this is the last move for a while. Powell’s message will matter more than the 25 bps.
Third consecutive 25 bps cut widely expected
Deep divisions limit Powell’s scope to signal more easing
Neutral range in sight; some officials already see policy as neither tight nor loose
Fresh projections, split votes and Q&A tone will steer 2026 path
Decision snapshot: one more cut, then a higher bar
The Federal Reserve is poised to cut rates for a third meeting in a row, taking cumulative easing to 150 bps over 15 months. With inflation still above target and growth pockets resilient, the bar for additional near-term cuts is rising. Several officials argue policy is approaching neutral — a setting that neither stimulates nor restrains — which leaves the Committee reluctant to promise more.
Why the messaging eclipses the move
October and much of November lacked official data due to the shutdown. That fog forces Powell to “walk a fine line” at his press conference: acknowledge softer pockets in the labour market without declaring victory on inflation. Expect him to avoid pre-committing to January or March and to emphasize data-dependence — effectively telling markets the streak may pause.
Statement and projections: what to watch
- Risk balance: Look for language that unemployment risks have “risen in recent months,” paired with “inflation remains somewhat elevated.”
- Dots and forecasts: The new projections will likely show a split path for 2026 — one camp near today’s level, another favoring a couple more cuts. Growth for 2025 may be nudged up; year-end inflation a touch lower; unemployment a shade higher.
- Neutral signal: Any hint that policy is near neutral reinforces the case for a pause after today.
Dissent dynamics: a wider spread of views
A clustered center is giving way to a wider spectrum. Market chatter points to potential dissents from hawks preferring to hold, while at least one governor may argue for a larger, 50 bps move. Translation: even if 25 bps carries, the vote split will underline just how conditional any future easing is.
Markets: priced for today, sensitive to tomorrow
Futures already lean heavily toward a cut now and thinner odds thereafter. With equities buoyed by easing hopes and yields off their highs, the risk is asymmetrical: a cautious Powell could flatten risk appetite quickly, while an overtly dovish tone would extend the relief but raise credibility questions if inflation proves sticky.
The road into 2026
Absent a decisive turn in jobs and prices, the Fed is likely to pivot from “cut-every-meeting” to “pause-and-assess.” Markets will recalibrate around:
- Labour data (Dec. 16) for signs o non-linear softening Powell worries about.
- CPI (Dec. 18) to gauge whether tariffs and services keep inflation above 2%.
- Financial conditions — already easier — which could limit the Fed’s appetite to cut again soon.
