WASHINGTON – The Federal Reserve on Wednesday lowered interest rates for the third time this year, signaling a more cautious approach to monetary policy as it heads into 2026. The central bank’s move comes amid internal divisions, with three officials dissenting from the decision—the highest number of dissents at a policy meeting since 2019. The Fed’s target for the federal funds rate now stands at 3.5% to 3.75%.
Fed Chair Jerome Powell emphasized that further rate cuts are not guaranteed and that the current level of rates is close to neutral, meaning it neither stimulates nor restrains the economy. The central bank’s projections indicate a wide range of views for next year, with the median official anticipating only one additional cut, though some policymakers expect two or more. Powell noted that tariffs are the primary factor keeping inflation above the Fed’s 2% target and said goods-related price pressures should ease in early 2026 if no new tariffs are introduced.
The decision comes as President Trump prepares to select a new Fed chair, with Powell’s term ending in May. Treasury securities purchases will resume as needed to maintain sufficient liquidity in financial markets, a step intended to prevent year-end market disruptions. Economic projections released alongside the rate decision show stronger growth in 2026, with GDP expected to rise 2.3%, and lower inflation at 2.4%, down from earlier forecasts. The Fed’s approach reflects a balance between concerns over persistent inflation and a resilient job market, while keeping options open for further policy adjustments next year.