When the Federal Reserve announced its third consecutive rate cut in December, lowering the federal funds rate to 3.5%-3.75%, the decision itself was widely expected. What caught seasoned Fed watchers off guard was the vote: 9-3, featuring both hawkish and dovish dissents in a combination not seen since September 2019.

That unusual split tells us more about the Fed's dilemma—and the uncertainty facing markets in 2026—than the rate cut itself.

Understanding the Three Dissents

The dissenting votes came from officials representing very different views about appropriate policy:

The Dovish Dissent

Governor Stephen Miran wanted a steeper half-point (50 basis point) reduction, arguing that the economy could handle—and perhaps needed—faster easing. His vote suggests concern that the Fed may be moving too slowly as labor markets soften and inflation continues its gradual descent.

The Hawkish Dissents

Regional bank presidents Jeffrey Schmid of Kansas City and Austan Goolsbee of Chicago took the opposite view, preferring to hold rates steady. Their dissents reflect worry that inflation remains too sticky and that further cuts could reignite price pressures before the battle is truly won.

Having simultaneous dissents from both directions is exceptionally rare and signals a committee genuinely uncertain about the correct policy path.

What the Dot Plot Reveals

The Fed's updated "dot plot"—its chart of individual officials' rate expectations—painted a picture of an institution with no clear consensus on what comes next:

  • 2026: The median projection shows just one additional rate cut
  • 2027: Another single cut expected
  • Seven officials: Indicated they want no cuts at all next year

This is a dramatic shift from earlier in 2025, when markets expected the Fed to cut aggressively and quickly. The reality has proven far more gradual—and the internal debate far more contentious than many anticipated.

Powell's Carefully Chosen Words

At his post-meeting press conference, Chair Jerome Powell tried to thread a difficult needle, acknowledging uncertainty while maintaining optionality:

"We are well positioned to wait and see how the economy evolves."

— Jerome Powell, Federal Reserve Chair

That language—"wait and see"—represents a notable pivot from the more activist posture the Fed struck during the rapid tightening cycle of 2022-2023. Powell is signaling that the committee is in no hurry to move in either direction, preferring to react to data rather than predict outcomes.

The Inflation Problem That Won't Go Away

Central to the Fed's dilemma is inflation that has proven stickier than anticipated. The committee's own projections show the Fed's preferred inflation measure remaining above its 2% target until 2028—a timeline that has extended repeatedly over the past two years.

With prices rising at approximately 2.8% annually, the Fed finds itself in an uncomfortable middle ground: inflation is too high to declare victory, but low enough that aggressive rate hikes seem unjustified.

What It Means for Markets

The 9-3 split has significant implications for how investors should think about 2026:

Expect Volatility Around Fed Meetings

With committee members so divided, market expectations can shift quickly based on incoming economic data. Each jobs report, inflation reading, and GDP print will carry outsized significance.

Don't Expect Aggressive Easing

The days of expecting multiple rate cuts per year appear over, at least until inflation convincingly moves toward target. The Fed is signaling patience, not urgency.

Watch the January Meeting

The next FOMC gathering on January 28, 2026, will be closely scrutinized for any shift in the committee's thinking. Currently, futures markets assign roughly 80% probability to rates staying unchanged, but March remains more uncertain.

The Leadership Question Looms

Adding to market uncertainty is the impending change in Fed leadership. Chair Powell is set to step down in May, and the selection of his successor will have significant implications for monetary policy direction.

Governor Chris Waller is being discussed as a potential candidate, with reports suggesting strong support among business leaders. How the new chair interprets the Fed's dual mandate—and whether they lean more hawkish or dovish than Powell—could reshape expectations quickly.

The Bottom Line

The 9-3 vote wasn't just a procedural curiosity—it was a window into a central bank wrestling with genuinely difficult tradeoffs. Inflation remains above target. Growth is slowing but not collapsing. The labor market is cooling but not cratering.

In this environment of competing signals, the Fed has essentially told markets: we're done making bold predictions. For investors, that means accepting greater uncertainty about the rate path and positioning portfolios for a range of outcomes rather than betting heavily on any single scenario.

If 2024 and 2025 taught us anything, it's that the Fed's forecasts—like everyone else's—are guesses about an inherently unpredictable future. The 9-3 split simply made that uncertainty official.