Federal Reserve Cuts Interest Rates Again as Inflation Stays High and Job Market Weakens
Third consecutive rate cut brings interest rates to a three-year low, but the Fed signals a possible pause amid political pressure and economic uncertainty.
The Federal Reserve has cut its benchmark interest rate for the third consecutive time in an effort to balance a slowing labor market and rising prices. However, it signaled clearly that it may pause further cuts in the coming months.
The decision—which lowered the rate by a quarter percentage point to around 3.6%, the lowest level in nearly three years—puts the central bank on a path that may clash with President Donald Trump’s expectations, as he has publicly pushed for faster and deeper cuts, according to Newsweek.
In its statement following a two-day meeting, the Federal Reserve said keeping rates unchanged for a period “may be appropriate” while officials assess incoming economic data. This reflects rising caution amid persistently high inflation and weakening job strength.
Fed Faces Sharp Internal Split as Inflation Pressures and Data Gaps Cloud Outlook
Wednesday’s decision revealed the deepest internal division within the Fed in six years: three members voted against the cut—two opposed any cut at all, while Steven Mnuchin—appointed by Trump—called for a larger half-point reduction. Committee projections show a wide split over the 2026 outlook, ranging from no additional cuts to two or more, with some preferring only one.
The decision comes as Americans continue to express frustration over high prices for essential goods, despite inflation significantly declining from its peak three years ago. Data shows the Fed’s preferred inflation gauge rose 2.8% year over year in September, while overall prices have climbed about 25% since 2020. Meanwhile, labor market momentum is fading, with hiring slowing and unemployment rising for the third consecutive month to 4.4%—the highest level in four years.
The situation is further complicated by a shortage of economic data due to the recent government shutdown, which halted the release of employment and inflation reports for two full months. The Fed expects to review three months’ worth of accumulated data by its late-January meeting, which will shape its next decision.
Fed’s 2026 Rate Path Hinges on Economic Data and Trump’s Successor Choice
If the numbers show further deterioration in the labor market, officials may lean toward another rate cut. But if hiring stabilizes while inflation remains high, further reductions may be delayed for several months.
All of this is unfolding under rising political pressure as Trump prepares to select a successor to Jerome Powell when his term ends in May. Trump has repeatedly stated that “immediate rate cuts” are a key requirement for the nominee. Kevin Hassett has emerged as one potential candidate, although he recently declined to specify how many cuts he would support, stressing the need to “follow the data first.”
Observers note that the Fed’s cautious stance reflects a delicate balance between an unstable economic landscape, unprecedented political pressures, and potential changes in central bank leadership. As a result, the interest rate path in 2026 will largely depend on upcoming economic data and the individual chosen to replace Powell.
