October 1, 2026
WASHINGTON (AP) — The Federal Reserve reduced its key interest rate by a quarter-point for the third time in a row Wednesday but signaled that it may leave rates unchanged in the coming months.
Chair Jerome Powell signaled at a news conference that the Fed would likely hold off on further rate cuts in the coming months while it evaluated the health of the economy. And in a set of quarterly economic projections, Fed officials signaled they expect to lower rates just once next year.
Wednesday's cut reduced the rate to about 3.6%, the lowest it has been in nearly three years. Lower rates from the Fed can bring down borrowing costs for mortgages, auto loans, and credit cards over time, though market forces can also affect those rates.
Three Fed officials dissented from the move, the most dissents in six years, and a sign of deep divisions on a committee that traditionally works by consensus. Two officials voted to keep the Fed's rate unchanged, while Stephen Miran, whom U.S. President Donald Trump appointed in September, voted for a half-point cut.
December’s meeting could usher in a more contentious period for the Fed. Officials are split between those who support reducing rates to bolster hiring and those who’d prefer to keep rates unchanged because inflation remains above the central bank’s 2% target. Unless inflation shows clear signs of coming fully under control, or unemployment worsens, those divisions will likely remain.
At a press conference following the announcement of the rate cut, Powell signaled that the Fed's key rate was close to a level that neither restricts nor stimulates the economy. As a result, officials can now take a step back and evaluate where the economy heads next.
Powell did, however, rule out an increase in rates.
“What you see is some people feel we should stop here, and we’re in the right place and should wait, and some people think we should cut more next year,” Powell said.
And Trump could name a new Fed chair as soon as later this month to replace Powell when his term ends in May.
A stark sign of the Fed’s divisions was the wide range of cuts that the 19 members of the Fed’s rate-setting committee penciled in for 2026. Seven projected no cuts next year, while eight forecast that the central bank would implement two or more reductions. Four supported just one. Only 12 out of 19 members vote on rate decisions.
The Fed met against the backdrop of elevated inflation that has frustrated many Americans, with prices higher for groceries, rents, and utilities. Consumer prices have jumped 25% in the five years since COVID.
“We hear loud and clear how people are experiencing really high costs," Powell said Wednesday. "A lot of that isn’t the current rate of inflation, a lot of that is imbedded high costs due to higher inflations in 2022-2023.”
In a delayed report last week, the government said the Fed’s preferred inflation gauge remained high in September, with both overall and core prices rising 2.8% from a year earlier. That is far below the spikes in inflation three years ago, but still painful for many households after the big run-up since 2020.
The Fed typically keeps its key rate elevated to combat inflation, while it often reduces borrowing costs when unemployment worsens to spur more spending and hiring.
Powell noted that there are signs inflation is continuing to cool. Tariffs have made many goods more expensive, but that could peak early next year, he said, while the cost of services — hotel rooms, entertainment, and restaurant meals — has been flat.
“If you get away from tariffs, inflation is in the low 2s," Powell said, near the Fed's target.
The lack of economic data since the government shutdown ended Nov. 13 has contributed to the divisions at the Fed. But when Fed officials next meet in late January, they’ll have up to three months of backlogged reports to consider. If those figures show that the job market has worsened, the Fed could reduce rates again in January.
By contrast, if hiring has stabilized while inflation remains elevated, they may hold off on additional cuts for several months.
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