That was the case Wednesday when they voted to cut the central bank’s benchmark lending rate by one-quarter of a percentage point, exactly as investors had expected. The move nudged the federal funds rate — which influences borrowing costs for mortgages, credit cards, and business loans — to the range of 3.5 percent to 3.75 percent, the lowest in three years.
What truly makes “Fed Day” matter is what comes after the vote: a news conference in which the Fed’s chair typically signals where policymakers see the economy heading — and how they might respond if things don’t go as planned. Four times a year, the central bank supplements its rate decision with projections on economic growth, inflation, and employment.
On Wednesday, the message boiled down to this: Inflation remains too high, the job market has gone cold, and officials were divided not only on the rate reduction, but also on the path forward.
Fed chair Jerome Powell said the quarter-point cut, plus two others since September, should be enough to shore up hiring while allowing inflation to resume falling toward the Fed’s 2 percent target.
But two voting committee members dissented, preferring to leave rates where they were, while one official — newcomer Stephen Miran, appointed by President Trump, who always says rates are too steep — voted for a half-point reduction. There were also four unofficial “silent” dissents from officials who opposed the rate cut but went along with the decision.
“What you see is some people feel we should stop here and we’re in the right place and should wait, and some people think we should cut more next year,” Powell told reporters.
(The rate committee has 19 members: seven Fed governors, the president of the New York Fed, and the other 11 regional Fed bank presidents, four of which vote on an annual rotating basis.)
Here are the key Fed Day takeaways:
The economy should pick up next year
Gross domestic product is expected to grow by 2.3 percent in 2026, based on the median estimate of policymakers. That’s not a gangbuster pace, but it’s an improvement from about 1.7 percent this year.
The increase includes about 0.2 percentage points of business activity that was delayed due to the federal government shutdown in October through mid-November.
The job market has stalled
The US unemployment rate was 4.4 percent in September, the highest in four years, according to the last Labor Department report before the shutdown. It will end next year more or less in the same place, the Fed’s projections show.
Powell said that employer demand for workers has declined, but labor supply growth has also slowed. Productivity improvements should drive the economy forward even as hiring sputters, he said.
Tariffs are keeping inflation elevated
The Fed’s preferred inflation measure rose 2.8 percent in September, a pace the Fed sees slowing to 2.5 percent next year.
Services inflation has eased, but the cost of many goods is moving higher as the full impact of Trump’s tariffs kicks in. Powell expects the increases to peak in the first quarter if no major new import levies are introduced.
“If you get away from tariffs, inflation is in the low twos,” he said.
Interest rates may not fall much in 2026
Policymakers’ median forecast was one rate cut next year, unchanged from their September estimate.
But there was a wide divergence among officials. Seven indicated they favored holding rates steady for all of 2026, suggesting that they expect inflation to remain sticky. Eight signaled support for at least two cuts, suggesting they see a pickup in unemployment as a bigger risk that hotter inflation.
Powell’s powers of persuasion prevailed
Despite the diverging views, Powell persuaded nine meeting participants to back the quarter-point cut out of concern that the job market is even weaker than it appears.
Government data show that the economy added an average of 40,000 jobs a month since April. But Powell said that figure will probably prove too high when the Bureau of Labor Statistics does its periodic revisions. Employers may have shedded about 20,000 jobs a month since the spring, he estimated.
Powell’s term as chair ends in May. Trump has made clear he will appoint a successor who will push for more aggressively lower rates. A leading candidate is Trump economic adviser Kevin Hassett, who has faithfully echoed his boss’s view that rates are holding back the economy.
Whether it’s Hassett or another pick, the next Fed chair will take the job at a time of unusually sharp divisions among policymakers.
Larry Edelman can be reached at larry.edelman@globe.com.