Fed Lowers Interest Rates to Three-Year Low amid Policy Divide

The U.S. Federal Reserve on Wednesday approved a second consecutive interest rate cut, but markets turned cautious after Chair Jerome Powell signaled uncertainty about whether another reduction would follow in December.

In a closely watched decision, the Federal Open Market Committee (FOMC) voted 10–2 to lower the benchmark lending rate to a target range of 3.75%–4%, marking a continued shift toward looser monetary policy. The central bank also announced it will end its balance sheet reduction program (quantitative tightening) starting December 1, according to CNBC.

The vote, however, exposed deep divisions within the Fed. Governor Steven Miran pushed for a larger half-point cut, arguing that stronger action was needed to shield the economy from weakening momentum. In contrast, Jeffrey Schmid, president of the Kansas City Fed, opposed any reduction, saying that inflationary pressures remained uncomfortably high.

Miran, an appointee of former President Donald Trump, has long advocated faster rate cuts — echoing renewed political pressure from Trump for the Fed to “act boldly” ahead of next year’s election.

Despite widespread market expectations of another rate cut in December, Powell struck a cautious tone at his press conference.

“No decision has been made yet,” he said. “There are wide differences of opinion within the committee about the next step.”

His remarks immediately tempered market optimism: futures traders slashed the probability of a December rate cut to 67%, down from 90% earlier in the week.

The Fed’s decision comes amid an unusual lack of official economic data, with key government reports suspended due to administrative delays. That absence has forced policymakers to rely on private-sector estimates and anecdotal evidence, a situation some analysts have dubbed a period of “data fog.”

The FOMC’s statement described the U.S. economy as continuing to expand at a “moderate pace.” Employment growth has slowed slightly, while inflation remains above the 2% target despite easing earlier in the year.

Economists say the central bank now faces a delicate balancing act: easing enough to support growth without reigniting price pressures.

“The Fed is flying partly blind,” said Sarah Linton, chief U.S. economist at CapitalEdge Research. “They’re trying to navigate between softening labor data and stubborn inflation — a mix that leaves little room for error.”

With internal disagreements widening and data visibility limited, the path ahead for U.S. monetary policy appears more uncertain than at any point this year.