Key points:

  • The Federal Reserve’s Federal Open Market Committee (FOMC) voted to cut the federal funds target by 25 basis points, to a range between 3.5% and 3.75%.
  • This cut signals support for the labor market amid growing concerns, even as inflation remains well-above the Fed’s 2% target.
  • Projections released today indicate that we shouldn’t expect the pace of cuts to continue — the median FOMC participant expects just one more 25 basis point cut by the end of 2026.

The Federal Reserve voted to cut interest rates for a third straight time today with an eye toward bolstering a softening labor market. But the vote was notably fractured, with some members favoring stronger action and still others favoring none. The labor market has cooled gradually since mid-2022 with little impact on unemployment and labor force participation, but successive months of dwindling job gains are adding up. Younger workers are reporting difficulties finding employment, and the average duration of unemployment continues to lengthen. Recent job gains have been primarily concentrated in a few industries, including healthcare & social assistance and leisure & hospitality. That has left job seekers in weaker areas, including tech and professional & business services, with fewer options. Workforce growth has slowed as a result of changes to immigration policy and demographic shifts, including an aging workforce and more retirees, which may mean that the market can continue to broadly soldier on with slower job growth. But the entirety of the data and lack of churn do not point to a labor market that is firing on all cylinders.  

On the other side of the mandate, prices are not rising as fast as they were a couple of years ago, but they are still increasing more quickly than the Fed would like. The Fed’s goal is for prices to rise by about 2% each year, and inflation still clocked in at 2.8% year-over-year in September 2025, according to core PCE. That is exactly half of its September 2022 peak of 5.6%, but still clearly above the target.   

What the committee chooses to do in the future remains unclear. Many of the policy actions taken by the committee in recent years have been adopted unanimously, but that is changing. The vote today was split three ways, with two FOMC members voting to leave rates where they were and one member voting for a 50 basis point cut. Different perspectives on various labor market indicators and the impact of tariffs, among other disagreements, are leading to more dissenting votes than we’ve seen in decades. Based on projections released after today’s meeting, we shouldn’t be expecting the wave of interest rate cuts to continue — the median FOMC participant expects only one 25 basis point cut by the end of 2026. 

Additionally, the extended government shutdown delayed the release of key federal data, adding further uncertainty to the mix. By the time the committee votes next in January, they will have job data for the last three months of the year and two additional months of unemployment data than they have currently. All eyes will be on whether that fresh data can help forge a new consensus, or only widen the existing divide.