The Federal Reserve on Wednesday approved a much-anticipated quarter percentage point interest rate cut at a meeting that was packed with intrigue and surprises. Here’s a look at five top takeaways:
- The hawkish cut is real — kind of. Wall Street had been anticipating the Fed would deliver a strong dose of caution along with the cut, with a warning that the bar was high for additional easing. Markets, though, didn’t seem to mind: Stocks posted solid gains on the day while Treasury yields fell.
- While a 9-3 vote might suggest broad support for the move, the Federal Open Market Committee is different. Three dissents is a lot, the most, in fact, since September 2019. And one of the “no” votes came from an unexpected source: Chicago Fed President Austan Goolsbee. Governor Stephen Miran wanted a half-point cut, while Goolsbee and Kansas City Fed President Jeffrey Schmid favored holding steady. A total of six of the 19 participants at the meeting said they wouldn’t have voted for the cut, giving voice to “soft dissents” who think the easing has gone far enough.
- The dots held. In short, the “dot plot” of individual officials’ rate views were little changed for the coming years, with the median indicating just one cut in 2026 and another in 2027 before the fed funds rate settles around a neutral 3%. Markets largely took the committee at its word, though futures pricing late in the day pointed to a non-negligible 38% chance of two cuts next year.
- Bond buying is back. Well, not really bonds, but bills, which the Fed will start buying again come Friday. With overnight funding markets feeling pressure, the central bank said it will buy $40 billion of short-term bills as part of a monthly program aimed at stabilizing markets and keeping the fed funds rate within its quarter-point range. Buying levels will change, but some market participants viewed the announcement as a stealth easing that is positive for risk assets.
- Chair Jerome Powell was mostly upbeat about growth, and so was the committee. “We have an extraordinary economy,” said Powell, who has just three meetings left as chair. FOMC officials raised their view as well, boosting the outlook for 2026 gross domestic product growth by half a percentage point to 2.3%.
What they’re saying
“Given the lack of consensus on the Committee displayed today, along with the slow release of traditional economic data, and the arrival of a new Fed Chair early in 2026, we think the Fed is likely to remain on hold for a while. Still, continued softness in some of the labor indicators can certainly bring another 25 bps cut into the mix for January.” — Rick Rieder, head of fixed income at BlackRock and a reported finalist to succeed Powell
“The Fed’s guidance probably tells us less than usual about the interest rate outlook, for two big reasons. First, they know less than usual about the current state of the economy because the shutdown delayed the release of economic statistics. Second, the Fed’s guidance doesn’t account for how its approach will change after Chair Powell’s term ends in May. In 2026, the Fed seems more likely to cut rates by more than signaled in the December Dot Plot than by less.” — Bill Adams, chief economist, Comerica Bank
“The Fed lifted its expectations of growth next year which, along with the increase in cash to American households via changing tax policy, will create doubt about the path of monetary policy. This dynamic in our estimation substantially lifts the bar on any prospective rate cut at the Fed’s next meeting in January.” — Joseph Brusuelas, chief economist, RSM
