A deeply divided Federal Reserve delivered its third rate cut of the year while signaling a much slower pace ahead, exposing dangerous fractures within America’s central bank as inflation remains stubbornly above target.
Story Highlights
- Fed cuts rates by 0.25% to 3.5%-3.75% range despite unprecedented three-member dissent
- Committee projects only one rate cut in 2026 and another in 2027, signaling cautious approach
- Inflation remains at 2.8%, well above Fed’s 2% target with no relief expected until 2028
- Trump expected to nominate Kevin Hassett as new Fed chair, potentially prioritizing lower rates over dual mandate
Unprecedented Division Signals Fed Uncertainty
The Federal Open Market Committee’s 9-3 vote on Wednesday marked the first three-dissent meeting since September 2019, revealing deep philosophical splits about monetary policy direction.
Governor Stephen Miran pushed for a steeper half-point reduction while Kansas City’s Jeffrey Schmid and Chicago’s Austan Goolsbee opposed any cuts.
Additionally, four nonvoting participants registered “soft dissents,” and seven officials indicated they want no cuts next year, demonstrating the Fed’s internal chaos during a critical economic period.
Divided Fed approves third rate cut, sees slower pace ahead https://t.co/xWm0ZrwTAi
— CNBC (@CNBC) December 10, 2025
Inflation Concerns Override Economic Growth
Despite raising GDP growth projections to 2.3% for 2026, the Fed acknowledges inflation will remain problematic through 2028. The central bank’s preferred inflation gauge sits at 2.8%, significantly above their 2% target.
This persistent inflation reflects the economic damage from previous fiscal mismanagement and represents a continued burden on American families. The Fed’s cautious approach suggests they recognize the real threat inflation poses to economic stability, contradicting previous assurances about transitory price increases.
Balance Sheet Expansion Raises Fiscal Concerns
The Fed announced it will resume buying Treasury securities, starting with $40 billion in Treasury bills Friday. This balance sheet expansion comes amid concerns about overnight funding market pressures but represents another form of monetary intervention.
The purchases will “remain elevated for a few months” before being reduced, adding liquidity to financial markets. This move signals potential underlying stress in the financial system that may not be immediately apparent to the public.
Trump Nomination Process Could Reshape Fed Leadership
With Powell’s term ending soon, President Trump faces a crucial decision in selecting the next Fed chair. Prediction markets favor National Economic Council Director Kevin Hassett at 72% probability, with former Fed Governor Kevin Warsh and current Governor Christopher Waller trailing significantly.
Trump has indicated he will prioritize candidates favoring lower rates rather than those strictly committed to the Fed’s dual mandate of stable prices and full employment. This approach could fundamentally alter the Fed’s traditional independence and inflation-fighting credibility.
Economic Data Gaps Complicate Policy Decisions
Fed officials have operated with incomplete information due to the six-week government shutdown that ended November 12. Much official data has been delayed or missing entirely, forcing policymakers to rely on incomplete information for critical decisions.
Available data shows a “low-hire, low-fire” labor market, but unofficial sources indicate potential job losses ahead, with announced layoffs topping 1.1 million through November. This information deficit raises questions about the Fed’s ability to make informed policy decisions during uncertain economic times.
