Look for a rate cut this week. Just don't count on more anytime soon.
The big picture: That is the likely outcome of a two-day Federal Reserve policy meeting that concludes Wednesday. It follows an unusually tumultuous six-week period that showed deep divides among the officials who will gather around the table this week.
- Members of both the hawkish and dovish wings of the committee have been unusually vocal about their diverging views on whether to cut rates.
- But the final signals from hawks, doves and Fed leadership all point to an accord of sorts: that the Federal Open Market Committee probably will cut its interest rate target by a quarter point on Wednesday, while signaling a high bar for when it may do so again.
State of play: A vocal contingent of monetary hawks — including several presidents of regional Fed banks — spent much of November making the case for holding rates steady and waiting for clearer evidence of labor market deterioration before cutting rates further.
- A similarly vocal contingent of doves — three Trump-appointed governors — made the case for cutting rates further to try to get closer to a neutral level that doesn't restrain activity, amid signs of job market weakness.
- Leadership — chair Jerome Powell, vice chair Philip Jefferson and New York Fed president John Williams — appeared to straddle the middle.
The intrigue: In the final days before the Fed's self-imposed blackout, in which officials go quiet before a meeting, the outlines of a compromise were visible — a December rate cut paired with messaging that further adjustments in 2026 are uncertain.
- Williams said in a speech last month that he sees "room for further adjustment in the near term" of rates.
- San Francisco Fed president Mary Daly, who has no official vote this year but has been an influential voice on the committee, endorsed a December rate cut.
- Officials who have been wary of cutting further, including current voters Chicago Fed president Austan Goolsbee and Boston Fed president Susan Collins, indicated it's no sure thing they would dissent.
What to watch: How far the committee goes on Wednesday to keep expectations for further rate cuts in 2026 in check.
- "Powell will likely get across that the bar for future cuts has risen and explain why some participants opposed a cut," wrote Goldman Sachs chief U.S. economist David Mericle in a note Monday morning.
- "But the FOMC cannot box itself in too much — especially at a time when we are two employment reports out of date — because a January cut could turn out to be appropriate," Mericle added.
