The Fed Cuts Rates Again—But the Real Story Is What Comes Next

The Federal Reserve cut interest rates by a quarter percentage point today, bringing the federal funds rate to a target range of 4.25%-4.50%. It marks the third consecutive reduction this year and the final monetary policy decision of 2025.

But beneath the expected headline lies a far more complicated story: a deeply divided committee, a chair serving his final months, and an economic outlook clouded by missing data and policy uncertainty.

A Decision Made in Unusual Circumstances

This rate cut comes under conditions that would be unusual in any year. The 43-day government shutdown earlier this fall created a backlog in critical economic data. November's jobs report and inflation readings have been delayed until next week—meaning the Fed made today's decision without the data it typically relies on.

"It's difficult to recall a time when the Federal Open Market Committee has been so evenly divided about the need for additional rate cuts," noted Michael Pearce, chief U.S. economist at Oxford Economics.

Some Fed officials argue that a cooling labor market—2025 has seen 1.17 million layoffs, the highest since the pandemic—requires continued easing. Others worry that inflation, while improved, remains sticky enough to warrant caution. The 18% import tariffs implemented this year add another layer of uncertainty about future price pressures.

The Dissent Problem

Multiple Fed officials reportedly dissented from today's decision, though in different directions:

• At least one member favored holding rates steady, arguing that further cuts risk reigniting inflation
• Another dissented in favor of a larger, half-point reduction, concerned about labor market deterioration

This three-way split reflects fundamental disagreements about where the economy stands and where monetary policy should go. When the committee can't agree on the diagnosis, agreeing on the treatment becomes nearly impossible.

Powell's Final Act

Today's meeting was effectively Chair Jerome Powell's last before his successor is identified. President Trump announced last week that he knows who he'll nominate as the next Fed chair, with a formal announcement expected "early next year." Powell's term at the helm ends in May 2026.

Trump has been sharply critical of Powell, calling him "too late" in cutting rates. The president began interviewing candidates this week, starting with former Fed governor Kevin Warsh—a known critic of the Fed's recent policies.

The leadership transition introduces significant uncertainty for 2026. A new chair could shift the committee's priorities, communication style, and reaction function to economic data. Markets will be watching the nomination process closely.

What the Dot Plot Tells Us

Along with the rate decision, the Fed released updated economic projections. The "dot plot"—showing where each committee member expects rates to go—is the key forward-looking signal.

Early indications suggest the committee expects fewer cuts in 2026 than previously projected. This "hawkish" message aligns with market expectations: futures had already priced in reduced odds of a January cut, down below 24%.

The message: today's cut may be more of a pause than a continuation. The Fed is signaling it's prepared to hold rates steady if inflation proves stubborn or economic data improves.

What This Means for Your Money

For Savers

High-yield savings accounts and money market funds will see slightly lower rates, but yields remain attractive by historical standards. The 4.25%-4.50% fed funds rate still supports savings yields in the 4%+ range at top institutions.

For Borrowers

Mortgage rates have remained stubbornly elevated despite Fed cuts—the 30-year fixed averaged 6.19% last week. Today's cut alone won't dramatically lower borrowing costs. Credit card rates, which move more directly with the fed funds rate, should decline slightly.

For Investors

Markets had largely priced in today's cut. The real market-moving information comes from Powell's press conference at 2:30 p.m. ET and the updated economic projections. A hawkish tone could pressure growth stocks; a dovish surprise could fuel a year-end rally.

The Road Ahead

The Fed's 2026 path depends on factors that remain unclear:

• Inflation: Will the tariff-driven price pressures fade, or prove more persistent?
• Employment: Is the labor market cooling toward stability, or heading toward weakness?
• Leadership: How will a new Fed chair approach these questions?
• Data: When will the government shutdown's data backlog finally clear?

For investors, the takeaway is that monetary policy uncertainty is likely to remain elevated well into next year. The Fed's next meeting in late January will be the first with a full picture of fall economic data—and potentially clearer signals about leadership transition.

The Bottom Line

Today's rate cut was expected. What wasn't expected is how uncertain the path forward looks. A divided committee, a lame-duck chair, missing economic data, and conflicting signals about inflation and employment create an environment where the Fed's 2026 actions are genuinely unpredictable.

For your portfolio, that argues for diversification and avoiding concentrated bets on any particular rate trajectory. The Fed itself doesn't know where rates are going—and neither does anyone else.