When Federal Reserve officials gather Tuesday for their final two-day rate-setting meeting of the year, as much as half the room might not want a cut.
But the final call will rest with Chair Jerome Powell, who appears poised to secure one despite the unusual opposition.
The focus this week will be whether Powell can stitch together enough consensus to minimize dissents. That would likely happen by cutting interest rates a quarter point to a range of 3.5% to 3.75% and then signaling a higher bar for further easing, through changes to the postmeeting statement. This cut-and-cap approach would echo how Powell concluded a sequence of three rate cuts in 2019 that also divided the committee.
Powell led his colleagues to cut in September and October after judging that the labor market looked shakier and the tariff-driven inflation surge that many feared hadn’t materialized. That assessment would also underpin a decision to cut this week.
Yet resistance to cuts has built among a group of policymakers who already saw a weak case for cutting at the past two meetings. These officials are uneasy because inflation has stopped declining toward the Fed’s 2% target. They worry interest rates might not be high enough to push it lower.
As many as five of the 12 voting members of the Fed’s policy committee, and 10 of all 19 members, have signaled in speeches or public interviews that they didn’t see a strong case to cut. Of those, only one formally dissented from the central bank’s decision to cut rates in October. (A second governor dissented in the opposite direction, favoring a larger cut.)
Job seekers speaking with recruiters at a career fair in Sacramento, Calif.
Officials have been unusually divided over what would be harder to fix if the Fed is wrong.
Hawks worry about cutting rates too much and finding inflation is a bigger problem next spring. “With inflation running persistently above target, a fed-funds rate close to 4% isn’t nearly as restrictive as you might have thought,” Dallas Fed President Lorie Logan said last month.
Doves fear that any damage from labor-market deterioration will be harder to undo by waiting for evidence of weakness. “I don’t feel as confident we can get ahead of it. It’s vulnerable enough now that the risk is it’ll have a nonlinear change,” said San Francisco Fed President Mary Daly in an interview last month.
Officials have also lacked the data to calibrate their outlook because of an extended government shutdown. The Labor Department is set to release reports next week, after the Fed meeting, on employment for October and November and inflation for November—part of a data deluge that could reshape the outlook.
A delayed September jobs report released last month showed stronger-than-expected payroll gains, but the unemployment rate ticked up to 4.4%, its highest since late 2021, and August was revised to show outright job losses.
The question is whether the payroll slowdown reflects weakening demand for workers, which would argue for cutting rates, or a shrinking labor supply driven by reduced immigration, which would argue against.
Nathan Sheets, global chief economist at Citi and a former senior Fed economist, said he would lean toward not cutting—but only narrowly. “It seems to me this is a 60-40 choice,” he said, adding neither outcome would be ruinous: “I don’t think it’s a huge policy error on either side.”
The harder task might be setting the bar for January. By then, officials will have employment and inflation data running through December—far more than they have now. For Powell, sending a strong signal that the Fed is done cutting will be tricky without knowing whether the incoming data will support that posture or threaten to quickly reverse it.
There is also a deeper question: How close are rates to “neutral,” a level that neither stimulates nor restrains the economy? Powell has justified the recent cuts by suggesting risks of weaker job-market conditions support moving toward neutral. If officials believe a cut this week gets them there, it could justify holding steady unless inflation begins to come down convincingly, or the labor market cracks.
Officials will release new economic projections on Wednesday that could show how much the current group expects to cut rates, if at all, in 2026. Interpreting such guidance is more difficult than usual because President Trump is seeking to change the makeup of the Fed so as to lower interest rates further.
He has tried, unsuccessfully for now, to remove a governor, Lisa Cook, appointed by former President Joe Biden. Cook has challenged her removal in court, and the Supreme Court is set to hear arguments next month.
Federal Reserve Board governor Lisa Cook speaking at the Brookings Institution.
Powell’s term as chair expires in May, meaning he will preside over the first three rate-setting meetings of 2026. Trump said last week that he has narrowed his search for Powell’s successor to one finalist, widely presumed to be Kevin Hassett, a longtime adviser.
Powell has generally been able to bring skeptical colleagues along by adjusting rate guidance to reflect their concerns—a dynamic that has helped limit dissents even when officials disagree. Whether his successor can command the same deference is an open question. Analysts have said a new chair trying to satisfy Trump could try to cut rates more than the rest of the committee will tolerate.
“It could be a hinge moment,” said Vincent Reinhart, a former senior Fed adviser who is now chief economist at BNY Investments. “The Fed is going to get more political, and a more political Fed will cut rates as much as it can.”
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