Fed Cuts Interest Rates, Signals Point to Just One More in 2026/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The Federal Reserve is expected to cut interest rates Wednesday, marking its third consecutive reduction in 2025. The cut would lower the federal funds rate to about 3.6%, the lowest level in nearly three years. All eyes are now on Chair Jerome Powell’s remarks, which may hint at only one more cut in 2026. Political pressure and lack of key economic data complicate the Fed’s future decision-making.
Quick Look:
- Interest Rate Cut Expected: A third consecutive cut could help ease borrowing costs for mortgages, auto loans, and credit cards.
- Fed’s New Forecasts Coming: Updated projections may show just one more rate cut in 2026.
- Data Delays Cloud Outlook: A government shutdown has delayed jobs and inflation reports, leaving Fed officials with limited guidance.
- Leadership Shift Looming: Powell’s term ends in May; President Trump is expected to name a successor soon, likely one who supports lower rates.
- Fed Remains Divided: Some members favor cutting to stimulate hiring, others prefer caution due to persistent inflation.
Deep Look: Fed Poises to Cut Interest Rates, Signals Point to Just One More in 2026
As the Federal Reserve meets Wednesday, it’s widely anticipated to cut its benchmark interest rate for the third time this year. The move would bring the rate down to approximately 3.6%, the lowest since early 2023.
But for economists and investors alike, the real focus is on what the Fed signals about its future plans. Will it continue cutting in 2026 — or is this the end of the road for rate reductions?
Economic Uncertainty Ahead
This week’s policy meeting may shape the central bank’s strategy going into 2026. However, delayed economic data—including key jobs and inflation reports—means policymakers are flying partially blind. A government shutdown earlier this year has prevented the usual flow of updated information that guides their decisions.
“They would love to take a pass in January, push it off to March, and just wait for a couple more inflation reports to come in,” said Tom Porcelli, chief economist at Wells Fargo.
The Fed will likely signal that further cuts will be more conditional moving forward, especially if the economy shows resilience despite lingering inflation.
Political Pressure and New Leadership
Complicating matters is the political pressure from President Donald Trump, who has already hinted at appointing a more dovish Fed chair when Jerome Powell’s term ends in May 2026.
In a recent interview with Politico, Trump confirmed that a willingness to cut rates would be a “litmus test” for the next Fed leader. His rumored favorite for the job, former economic adviser Kevin Hassett, has long advocated for lower interest rates.
However, even Hassett tempered his comments this week, telling CNBC, “What you need to do is watch the data,” when asked about future cuts.
Mixed Signals from Inflation and Labor Market
Though inflation has eased from the highs of 2022, it remains above the Fed’s 2% target. Last week’s delayed inflation report showed the Fed’s preferred measure — core PCE — still at 2.8% annually as of September.
That puts some officials in a cautious camp. Cutting too much, too fast, they argue, could reignite inflation and threaten the Fed’s credibility.
Others are more concerned about signs of economic slowdown. If layoffs increase or job growth weakens in the data released before the January meeting, another rate cut could be back on the table.
Fed’s Economic Projections Due Wednesday
Alongside the rate decision, the Fed will release its quarterly economic projections, which include forecasts for:
- GDP growth
- Inflation
- Unemployment
- The future path of interest rates
Economists expect the Fed will signal just one more rate cut in 2026, consistent with projections from earlier this year. However, these forecasts may lose relevance if Trump appoints a new chair who shifts policy direction.
What It Means for You
If you’re a consumer or business owner, lower interest rates could eventually reduce borrowing costs — especially for mortgages and auto loans. But much depends on how quickly financial markets respond and how inflation behaves in coming months.
For investors, Powell’s press conference Wednesday could offer clues about when — or if — the Fed might pause its rate-cutting cycle. And for policymakers, balancing economic growth vs. inflation control remains a delicate task.
What to Watch For:
- 2:00 PM ET Wednesday: Federal Reserve rate decision
- 2:30 PM ET: Jerome Powell’s press conference
- Fed’s updated “dot plot” showing projected rate paths
- Any comments on political influence or leadership transition
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