After the October Federal Open Market Committee meeting Fed Chair Jerome Powell said a December rate cut "
Much has changed since then and most economists are sure the FOMC will lower rates by 25 basis points to a range of 3.5% to 3.75% when they meet this week, but analysts remain divided on their predictions about future meetings as they await this week's vote and expected dissentions.
"The FOMC will cut rates a third time this year, bringing the funds rate to a midpoint target of 3.625%. With the market pricing near certainty of this policy outcome, there should be little market reaction from this rate cut," said
The answer to that would be no, he said. "Our hawkish/dovish reading of media articles is mostly stable, indicating continued division around the forward path of rates. This will cause Powell to go back to data dependence, while likely trying to orchestrate another hawkish cut, as he did at the October meeting."
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In addition, tariff-related inflation is growing, he said, "making its way into alt-inflation data, such as the PriceStats series that we provide. Given these uncertainties, we think the Fed will keep its policy optionality open, with a deluge of official data expected before the January meeting."
The updated Summary of Economic Projections "will be a bit of a walk in a dark hallway given the lack of official data," Loh said. "We therefore think that the SEP will represent the varying inherent views of the doves and hawks on the committee."
As a result, the projections are likely to "justify the Fed's cut in December but will also signal patience (and likely pause in cutting) as we enter the new year."
The vote to cut rates will likely include two or three dissents, one seeking a larger reduction in rates, said Ameriprise Financial Chief Economist Russell Price.
"The policy announcement and the post-announcement press conference are likely to stress the uncertainty and upside risk of inflation once again, but with a greater focus on labor market concerns than we've seen previously," Price said.
Inflation trending weaker will allow the FOMC "to maintain a dovish policy tone through 2026," he said, with four rate cuts, one per quarter, next year.
This projection assumes Kevin Hassett will be nominated and eventually confirmed as the next Fed chair.
Although both inflation and employment are not at target, Price said, "We believe the employment side of the equation is the more pressing concern, and notably so."
Inflation should increase slightly in the next few months before subsiding, he said. "The job market is much less certain and in a more precarious position."
After "a roller coaster ride of sentiment since the October meeting," the Fed will cut rates, said
While the labor market growth remains slow, inflation appears "reasonable given the previous concerns over tariffs and policy uncertainty. The Fed has highlighted the risk and unusual nature of today's labor market and would likely tilt toward supporting growth rather than fighting inflation," Pzegeo said.
"Shutdown or not, the Fed has more than enough visibility to go ahead with a December rate cut," said University of Central Florida
"Inflation keeps easing, hiring remains soft, and this is nowhere near a four-alarm fire," he said. "A steady, gradual path of cuts is backed by everything we see — and likely by the next round of data coming out."
With the cut priced in, Northlight Asset Management Chief Investment Officer Chris Zaccarelli said markets will be watching how the Fed and Powell "describe the outlook for next year as the future path of rate cuts is much more controversial than whether or not a single 25 bps cut this month is warranted."
Still, he expects volatility in 2026. "So many of the macroeconomic conditions are likely to change: employment, inflation, GDP growth, to name a few," Zaccarelli said.
"Multiple dissents seem likely," said Wells Fargo senior economists Sarah House and Michael Pugliese. "A more hawkish post-meeting statement could be used to limit the total number of dissents. We expect the statement to signal a higher bar to additional rate cuts and to hint that a hold in January is most committee members' working assumption."
As for the SEP, they expect unemployment projections to rise and inflation to decline "consistent with another 25 bps rate cut at this meeting," but overall, the shifts will be small.
As for the dot plot, House and Pugliese expect no change for 2026, although "it would take just one participant at the current median of 3.375% moving their dot lower for the median to fall."
The risks to the median rate projection "is skewed to the downside," they said.
Despite "divisions over the timing and pace of rate cuts," Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities at UBS Global Wealth Management, expects "a steady pace of rate cuts, with two more by the end of the first quarter — creating a positive backdrop for quality bonds.
"We are positive on quality bonds, specifically high-grade government and investment grade corporate bonds," Hoffmann-Burchardi said, with four-to-seven-year maturities delivering "mid-single-digit returns from a mix of yield and capital appreciation as the Fed cuts rates."
While a cut will come, "the vote will be close, perhaps decided by just one or two swing voters, though we don't expect more than one or two dissents no matter what the committee decides," said FHN Financial Chief Economist Chris Low.
Still, some economists see some play.
"A cut is not a proverbial slam dunk, given that there are many Fed officials who have openly stated their opposition to cuts," said BMO Chief Economist Douglas Porter. "Still, the Fed rarely surprises the market, and key speakers did not push back earlier on as the market leaned into a cut."
Inflation has been too high to help "the rate-cut cause," he said, but at the same time it "hasn't been strong enough to get in the way."
Corpay Cross-Border Solutions Chief Market Strategist Karl Schamotta noted, "Markets overwhelmingly expect a hawkish cut on Wednesday, with the statement language, dot plot projections, and Chair Powell's words all pointing to a more gradual pace of easing in the coming months."
Slowing job growth, with the unemployment rate rising for three consecutive months and other factors raise "the risk of a non-linear deterioration in labor markets," while "inflation remains stubbornly high, financial conditions are remarkably loose, and consumer spending is still going gangbusters, making it unlikely the entire rate-setting committee will vote to approve the move."
Comerica Bank Chief Economist Bill Adams also expects "several" dissenting votes. "The Fed will likely be tight-lipped about the outlook for rates in 2026 given conflicting views among FOMC members."
Expect "measures to support short-term funding markets after signs of tight liquidity in them in recent months," he said.
"Unlike the October meeting, which benefited from a just-in-time consumer price index report, the Federal Reserve will now have to make its decision within an unprecedented data vacuum," said Bankrate Financial Analyst Stephen Kates.
Much has been said by Fed officials ahead of this meeting, much of it "conflicting," he said. "Markets are accustomed to a tight consensus and these differing viewpoints have contributed to volatile expectations."
Given the disparate opinions, multiple dissenting votes "may now become the norm," Kates added.
The SEP numbers, he said, "will need to be taken with an extra-large grain of salt because so little fourth quarter data is available to guide projections for 2026."
State Street's Loh also looked at the chair spot, calling replacing Powell "a two-step process."
"President Trump will likely announce a replacement for (current Governor Stephen) Miran, with the implicit expectation that this replacement will also be nominated as chair," Loh said.
"This will create a shadow position that Powell will need to manage at the start of 2026, although the divisions amongst the FOMC do not guarantee that the shadow appointment will be able to dominate the conversation," he said. "None of this will be discussed at this meeting however, although investors will be watching its evolution."
