Federal Reserve Cuts Interest Rates for Third Time in Year

The U.S. Federal Reserve on Wednesday lowered its benchmark interest rate by a quarter percentage point, marking its third rate cut this year and bringing the federal funds rate to a range of 3.5% to 3.75%. The move, widely anticipated by markets, has been described by analysts as a show of “hawkish easing,” reflecting concerns about how long the Fed can maintain its rate-cutting cycle.

The vote revealed an unusually sharp divide within the Federal Open Market Committee (FOMC), with three dissenters, the largest number of objections since September 2019.

Stephen Miran pushed for a deeper, half-point cut.

Jeffrey Schmid (Kansas City Fed) and Austan Goolsbee (Chicago Fed) argued for leaving rates unchanged.

According to CNBC, this level of disagreement underscores the Fed’s growing hesitation as it attempts to balance still-elevated inflation with slowing economic momentum.

In its statement, the committee reverted to language emphasizing caution, noting it will carefully assess “incoming data, the evolving economic outlook, and the balance of risks” before taking further action.

A similar phrasing in 2024 preceded a lengthy pause in rate reductions, prompting speculation that the Fed may be approaching another slowdown in its easing campaign.

The updated dot plot signaled policymakers expect only one cut in 2026 and one more in 2027, before rates settle around 3% in the long run, a projection that highlights ongoing internal divisions and the Fed’s uncertainty about the future path of inflation and growth.

Policymakers also raised their forecast for 2026 GDP growth to 2.3%, while inflation is now projected to stay above the 2% target through 2028. Current inflation stands at 2.8%.

Alongside the rate decision, the Fed announced it will resume purchasing $40 billion in U.S. Treasuries starting Friday, a move aimed at calming strains in short-term funding markets and ensuring liquidity remains ample.

The combination of a divided committee, persistent inflation pressures and cautious forward guidance suggests the Fed may be nearing the limits of its current easing trajectory, even as economic risks remain finely balanced.