The Federal Open Market Committee (FOMC) lowered the federal funds rate by 25 basis points for the third straight meeting on Wednesday.
The rate is now at the 3.50% to 3.75% range – the lowest it has been since September 2022.
As has been the case in recent meetings, there was a split on the committee with three dissenting votes. FOMC member Stephen Miran voted no, seeking a 50-basis point reduction, while Austan Goolsbee and Jeffrey Schmid voted no, favoring no rate cut.
Along with the rate cut, the FOMC also released its quarterly summary of projections, or dot plot. The dot plot showed no changes from projections that the committee made last quarter.
Specifically, the dot plot shows that the committee expects just one rate cut in 2026 to a median of 3.44% and one more in 2027 to a median of 3.1%. The median rate for 2028 is also 3.1% — showing no changes that year. These are just projections and not set in stone, but investors may have been hoping for acknowledgement that more cuts would be coming over the next three years.
The dot plot is probably the reason that stocks were mixed following the 2:00 p.m. ET announcement. The Nasdaq took the biggest hit, shedding 70 points while the S&P 500 was only up 9 points. The Dow Jones was up about 290 points.
Uncertainty elevated
In its statement, the FOMC said the downside risks to employment have risen, while inflation has moved up and uncertainty about the economic outlook remains elevated.
Also, the committee said it will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves.
The FOMC sees improvements in the labor market and prices in 2026 and 2027, which may in part explain the slowing pace of rate cuts.
The dot plot projects PCE inflation to be 2.5% in 2026, which is lower than the 2.6% projection in September. For 2027, the committee expects inflation to be at 2.1%.
The unemployment rate is anticipated to be at 4.4% in 2026, same as the previous projection. But for 2027, they see it at 4.2%, down from 4.3% in September.
Perhaps more importantly, the FOMC sees the economy growing at a 2.3% clip in 2026, up from the previous prediction of 1.8% growth. Further, they see 2.0% growth in 2027 and 1.9% growth in 2028, both of which are higher than previous estimates.
Source: https://www.fxstreet.com/news/fomc-lowers-rates-for-third-straight-meeting-202512110545
