The Federal Reserve is widely anticipated to implement an interest rate cut next week, even as its officials are deeply divided on the outlook for the US economy. This expected move, which would be the third quarter-point reduction in a row, is forecast to bring the federal funds target range to its lowest level in over three years.
Key Drivers and Concerns
- Weakening Labor Market: The primary driver for the expected cut is concern over a potential slowdown in the US labor market, compounded by mounting affordability pressures—higher costs—facing ordinary Americans.
- Economists’ Consensus: An FT-Chicago Booth survey of leading academic economists showed that 85% agree the Fed will ease borrowing costs in response to labor market fears.
- Inflation Debate: The rate-setting Federal Open Market Committee (FOMC) has been debating whether to prioritize the weakening job market over an inflation rate that has remained above the Fed’s 2% goal since the spring of 2021.
- Services Sector Inflation: Several regional Fed presidents, who previously opposed a rate cut in October, are now backing one due to worries that inflation in the dominant services sector is rising, coupled with the yet-to-be-felt impact of US President Donald Trump’s tariffs.
Expectation of Significant Dissent
Despite the consensus on the action itself, the decision is expected to be contentious:
| Expected Dissent | Survey Response |
| Two Dissents | 60% of respondents |
| Three or More Dissents | One-third of respondents |
| Unanimous Vote | Only 1 respondent |
The expected division is substantial; there have not been more than two dissenting votes at an FOMC meeting since September 2019.
As Brandeis University professor Stephen Cecchetti noted, while dissent on inflation grounds can improve credibility, “significant division… raises questions about the FOMC’s collective goals.”
Potential Voting Breakdown
- Likely Dissenters Against the Cut: Kansas City Fed president Jeff Schmid (who also dissented in October), Boston Fed’s Susan Collins, Chicago’s Austan Goolsbee, and Fed Governor Michael Barr (who signals little room to lower costs).
- Push for a Larger Cut: Fed Governor Stephen Miran, a Trump ally, is likely to push for a jumbo 50 basis point cut.
Economists’ Priority: Inflation over Jobs
While the impending rate cut targets the labor market, economists polled indicated that the Fed should focus more on prices:
- 48% favored making controlling inflation the priority.
- 5% favored focusing on jobs.
- The remainder wanted equal weight given to both sides of the dual mandate.
