U.S. Federal Reserve implements its third interest rate cut this year... suggests a slowdown in the pace of future cuts

Source: BlockMedia Original Title: U.S. Federal Reserve Implements Third Rate Cut of the Year… Signals Slower Future Cuts Original Link: https://www.blockmedia.co.kr/archives/1017929

Hawkish Cut Sparks Internal Divisions

The Federal Open Market Committee(FOMC) has cut the core short-term borrowing rate by 0.25 percentage points, setting the target range at 3.5%–3.75%.

However, this decision carries cautious signals about future policy directions, with a significant split among members—three members voted against the cut, the largest division since September 2019. In the 9-3 vote, hawkish and dovish dissenting opinions appeared simultaneously. Director Steven Miran preferred a steeper 0.5% rate cut and opposed the move dovishly, while Kansas City Fed President Jeffrey Shamer and Chicago Fed President Oustan Gousby supported holding rates steady and voted against the cut.

Signal to Hold Off on Cuts for Now

The post-meeting statement reused wording from a FOMC meeting about a year ago. It stated, “Considering the scope and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully evaluate incoming data, changing outlooks, and risk balance.” When this phrase was used in December 2024, it was interpreted as a signal that the committee was likely to hold off on rate cuts for the time being.

Slow Pace of Cuts After 2026

The dot plot representing individual members’ rate outlooks predicted only one rate cut in 2026 and another in 2027. After that, the federal funds rate is expected to reach a long-term target near 3%.

Though unchanged from the September update, the dot plot reflected serious internal divisions within the committee. Besides the two votes against rate cuts, four non-voting members expressed moderate dissent. Seven members also indicated that there should be no rate cuts at all next year.

Economic Outlook

The committee raised its 2026 U.S. GDP growth forecast by 0.5 percentage points to 2.3%. Inflation is expected to remain above the 2% target level through 2028.

The Fed’s preferred inflation indicator, the Personal Consumption Expenditures (PCE) Price Index, recorded an annual rate of 2.8% in September. While significantly down from its peak years ago, it still exceeds the central bank’s 2% target by a large margin.

Pausing Balance Sheet Reduction and Resuming Treasury Purchases

The Fed announced it will restart its Treasury bond purchases, following the previous October meeting where it indicated a halt to the balance sheet reduction this month.

The central bank plans to begin purchasing $40 billion worth of Treasury bonds. Over the coming months, the size of these purchases is likely to remain high initially and then significantly reduce over time.