The US Federal Reserve announced on Wednesday that it was cutting interest rates by a quarter point for the third time this year, as the embattled central bank appeared split over how best to manage the US economy.
The Fed chair, Jerome Powell, has emphasized unity within the Federal Open Market Committee (FOMC), the board of Fed leaders that sets interest rates. But the nine-to-three vote to lower rates to a range of 3.5% to 3.75% was divisive among the committee that tends to vote in unanimity.
New projections from officials also suggest hesitance to cut rates further next year, a refusal that could further rifts between the Fed and the White House.
The split highlights the overall uncertainty within the Fed as the US economy absorbs major economic shakeups, including tariffs, changes to the labor force from Trump’s immigration crackdown and massive government cuts. Making matters harder for Fed officials is the lack of comprehensive price and labor market data, the collection of which was halted during the government shutdown. And Trump is weighing his choice for replacing the Fed’s chair.
The latest economic data has shown slight increases to both inflation, which went from 2.3% in April to 3% in September, and unemployment, which went from 4% in January to 4.4% in September.
The dual increases, while relatively small, put the Fed in a tough spot. Keeping rates too high could stall the economy, but bringing rates down too quickly could mean higher inflation.
Earlier in the year, Fed officials said they were waiting to see how Donald Trump’s tariffs would impact prices before making any changes to interest rates, pausing a rate cutting campaign that had started last fall.
For months, Trump and his allies in the White House have publicly attacked Fed officials – typically, US presidents respect the nonpartisan nature of the central bank – for not lowering interest rates. Even with rising inflation, Trump has continued to insist that any price increases are holdovers from Joe Biden’s presidency, despite some corporate leaders saying that their price increases are directly attributed to tariffs.
Trump has been calmer toward the central bank since September, when officials cut rates by a quarter point and again during their meeting in October. Last month, Powell said officials weren’t making cuts out of confidence that prices were coming down. Instead, officials were becoming increasingly worried about the labor market, with fewer jobs being added to the economy each month.
“There is no risk-free path for policy as we navigate this tension between our employment and inflation goals,” Powell said at the time.
Minutes from the October meeting described “strongly differing views” about how policymakers should move forward in this December meeting. The notes described how some participants believed a cut would be appropriate to move rates back toward a “neutral policy stance over time”, while others believed that current economic conditions did not merit changes to rates.
In remarks last month, Tom Barkin, president of the Richmond Fed, said that “without compelling data, it’s actually hard to get people who have pre-existing perspectives to all come to a consensus.
“You could argue it out, and maybe that’s what we’ll do,” he said.
Next year, Powell’s term as chair will be up in May, leaving room for Trump to nominate his pick for the most influential economic role in the country. Trump has suggested Kevin Hassett, the director of the National Economic Council, could be his nominee, though it is unclear how popular Hassett is among other Republicans.
Hassett told Fox News on Wednesday that Trump will befinalizing his choice within the next few weeks.
