BySimon Moore,
Senior Contributor.
The Federal Open Market Committee has cut interest rates at each of the last three meetings of 2025. On December 10, the Federal Funds rate was cut to 3.5%-3.75%. However, Federal Reserve Chair Jerome Powell suggested that interest rates may now be at a more neutral level during his December 10 press conference. There’s a lot of economic data to come before the FOMC holds its first meeting of 2026 on January 27-28, particularly as the 2025 government shutdown has delayed or eliminated some statistical economic reporting. Still, the likely direction for interest rates is potentially lower over time, but the CME’s FedWatch Tool currently gives just a 1 in 4 chance of a January cut.
For now, Powell suggested there is a broad balance between inflation being above target and the job market showing potential downside risks. For example, the FOMC’s December statement noted that, “Inflation has moved up since earlier in the year and remains somewhat elevated.” But also that, “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months”
This sense of balance of risks is also apparent in the voting within the FOMC where two policymakers (Schmid and Goolsbee) voted to hold rates at current levels and one policymaker (Miran) preferred to lower interest rate further than the FOMC’s ultimately decided. Notably for 2026 both Jeffrey Schmid and Austan Goolsbee will rotate from voting roles on the FOMC, which has the potential to make the voting membership perhaps more dovish depending on the policy perspectives of their replacements.
