WASHINGTON (AP) – The Federal Reserve on Wednesday cut its key interest rate by a quarter of a point for the third time in a row, but signaled it may keep rates unchanged for months to come.
Chairman Jerome Powell indicated at a news conference that the Fed is likely to refrain from further rate cuts in the coming months while it assesses the health of the economy. Fed officials also signaled in a series of quarterly economic forecasts that they expect to cut interest rates only once next year.
Wednesday’s cut lowered the rate to about 3.6%, the lowest level in about three years. Interest rate cuts by the Fed can lower borrowing costs Interest rates on mortgages, auto loans, and credit cards change over time, and market forces can also affect these rates.
Powell said Fed officials will “carefully evaluate the data as we move forward,” adding that the Fed is “in a good position to watch how the economy develops.” The chairman also said the Fed’s key interest rate is close to a level that neither restricts nor stimulates the economy.
Three Fed officials opposed the move, the most dissent in six years and a sign of deep divisions in a committee that traditionally works by consensus. Two officials voted in favor of keeping Fed rates on hold, but Stephen Millan, whom President Trump appointed in September, voted in favor of cutting them by 0.5 points.
The December meeting could mark another contentious period for the Fed. The official is Split Opinion is divided between those who support lowering interest rates to boost employment and those who want to keep rates unchanged as inflation remains above the central bank’s 2% target. These divisions will likely remain unless there are clear signs that inflation is fully under control or unemployment worsens.
“Some people think we should stop here and wait because we’re in the right position, but some people think we should cut further next year,” Powell said. However, he ruled out raising interest rates next year.
President Trump on Wednesday criticized the cuts as too small and said he would like to see them “at least double.” The president could name a new Fed chair as soon as possible later this month He will succeed Powell, whose term ends in May. New Chairman Trump is likely to push for deeper rate cuts than many officials support.
Stocks soared in response to the Fed’s move, in part because some Wall Street investors expected Chairman Powell to become more forceful to block the possibility of future interest rate cuts. Broad S&P 500 Stock Index 0.7% increase The stock closed near its all-time high set in October.
Powell was also optimistic about economic growth next year, saying consumer spending remains resilient while businesses continue to invest in artificial intelligence infrastructure. He also suggested that improving worker efficiency could also boost growth.
A notable illustration of the Fed’s divisiveness was the wide range of interest rate cuts decided by the 19 members of the Fed’s rate-setting committee for 2026. Seven people expected no interest rate cuts next year, and eight expected the central bank to cut rates two or more times. 4 people supported only 1 person. Only 12 of the 19 members vote on interest rate decisions.
The Fed met against a backdrop of rising inflation. I was irritated There are many Americans living here, and food, rent, and utility costs are high. Consumer prices have increased by 25% in the five years since the coronavirus outbreak.
“We’re hearing loud and clear that people are facing really high costs,” Powell said Wednesday. “A lot of that is not the current rate of inflation, and a lot of it is built in the higher costs of higher inflation in 2022-2023.”
The government announced in a late report last week that the Fed’s preferred inflation measure remained high in September. Overall and core prices increased by 2.8% From a year ago. This is far below the spike in inflation three years ago, but still painful for many households after the large rise in inflation since 2020.
The Fed typically keeps its key interest rate high to fight inflation, but when unemployment worsens it often lowers borrowing costs to increase spending and hiring.
Adding to the Fed’s challenges, job growth has slowed sharply this year and the unemployment rate is rising. 3 consecutive months Up to 4.4%. Although this is still a historically low rate, it is the highest in the past four years. Layoffs have also been held back for now as part of what many economists call layoffs. “There are fewer jobs and fewer layoffs.” job market.
Still, Powell said the committee cut borrowing costs out of concern that the job market was even weaker than it appeared. Government figures show the economy has added just 40,000 jobs a month since April, but Powell said that figure could be revised downward by as much as 60,000, meaning employers have actually shed an average of 20,000 jobs a month since the spring.
“We believe there are significant downside risks to the labor market,” Powell told reporters. “People care about that. That’s their job.”
At the same time, Powell said there are signs that inflation will continue to cool. Tariffs have increased the prices of many goods, which could peak early next year, while the cost of services such as hotel rooms, entertainment and restaurant meals has remained flat, he said.
Chairman Powell said, “If we avoid tariffs, the inflation rate will be in the low 2% range,” which is close to the Fed’s target.
Economic indicators have been lacking since the government shutdown ended on November 13th. contributed to each department of the Fed. But when Fed officials next meet in late January, they will have to consider up to three months of backlogged reports. If these numbers indicate a deterioration in the job market, the Fed could cut rates again in January.
By contrast, if inflation remains high and employment stabilizes, further cuts could be postponed for several months.
Mr. Powell will preside over three more Fed meetings before resigning. He was asked about his heritage.
“The economy is in such good shape that I would really like to hand this job over to someone who can replace me,” he said. “I would like to see inflation subdued and down to 2%. I would also like to see a strong labor market.”
