Bloomberg Economics Experts: The US Federal Reserve Is Moving to Cut Interest Rates Despite Divisions

Federal Reserve Chairman Jerome Powell is expected to push for a new quarter-point interest rate cut this week, despite growing concerns among several monetary policymakers about inflation remaining at elevated levels.

The Fed cut interest rates for the second consecutive time in October, driven by the unexpected deterioration in the US labor market over the summer. However, this was followed by a wave of “hawkish” concerns expressed by some officials, including five members who have voting rights on monetary policy this year, indicating hesitancy or unwillingness to support a third rate cut in December.

This growing division has been exacerbated by a lack of recent economic data due to the government shutdown, which lasted for most of October and November. The latest inflation figure reviewed by monetary policymakers, released on December 5, dates back to September, and this report is unlikely to change the ongoing debate over monetary policy.

Against this backdrop, investors showed serious doubts for about a week in mid-November regarding the likelihood of another rate cut. However, much of this unusual debate was settled on November 21 when New York Fed President John Williams, who is seen as close to Powell, said he saw room for a cut “in the near term.” The market received the signal, and now sees the likelihood of a rate cut next week at over 90%.

Economists surveyed by Bloomberg expect the Fed to pause before implementing two additional cuts in 2026, in March and September. There is some hope that the flow of new data—as statistical agencies catch up on delays caused by the shutdown—will help resolve the ongoing tension between the Fed’s dual mandates: containing inflation and maximizing employment. However, new drama is looming on the horizon, as President Donald Trump is expected to soon announce a successor to Powell, whose term ends in May. Kevin Hassett, a close Trump ally and one of his top economic advisers, is considered the frontrunner. This has sparked concerns among some investors that the next Fed chair may push for a rate cut at Trump’s direction, which could fuel inflation.
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