Powell Said Fed Rate Cut Creates Plenty of Room to Wait

Curt Long, chief economist for America’s Credit Unions, said the FOMC has now cut rates by 75 basis points since September to its current range of 3.50% to 3.75%.

“The FOMC cut rates for the third meeting in a row, but signaled a higher bar for further moves in 2026,” Long said.

The Fed released a survey of projections of the 19 FOMC members, showing 12 supported the 25 bps cut, six thought the rate should have been unchanged and one thought it should have been cut 50 bps.

For 2026, members were highly divided. Half of members thought the rate should end the year at 3.25% or higher. But the breakdown was over a wide range: seven thought the rate should be 3.5% to 4%, eight opted for 3% to 3.5% and the four others wanted rates of 2% to 3%.

“However, the committee also expects unemployment to decline next year alongside moderating inflation,” Long said. “For the hawkish faction, it will likely take a meaningful rise in unemployment to justify more rate cuts next year.”

Mike Fratantoni, chief economist for the Mortgage Bankers Association, also said the three dissents highlighted the committee’s division on future rate cuts.

“Inflation is well above the Fed’s target, but the job market appears to be softening, even as data to confirm that trend is still delayed due to the recent government shutdown. Thus, there is ammunition for both sides of the debate within the FOMC,” Fratantoni said.

Despite the differences among members, their median forecasts for this year ending at 3.6%, next year at 3.4% and 2027 at 3.1% were all unchanged from September.

The projections also showed:

• Most believe the economy will perform better: with fourth-quarter GDP at 1.7%, up from September’s median of 1.6%. They expect 2026’s fourth-quarter GDP to show 2.3% growth, up from the 1.8% median in September.
• Their view on unemployment was unchanged from September: ending this year at 4.5% and next year at 4.4%.
• They expect slightly lower core personal consumption expenditures (PCE) inflation, which excludes food and energy. They expect core PCE to be 3.0% in the fourth quarter, down from September’s expectation of 3.1%. A year from now they expect it to moderate to 2.5%, slightly lower than their 2.6% expectation in September.

While the Fed is operating with data that is missing or delayed by the government shutdown, Powell also said some of the household data used to determine unemployment will be distorted because data was not collected in October. “We’re going to look at that data very carefully.”

And the establishment survey data used for job creation estimates is also flawed by a “systematic over-count” that he estimated was about 60,000 jobs per month. He said a report of a 40,000 gain in jobs might be an actual loss of 20,000 jobs.

Powell said the discussions among FOMC members were “thoughtful” and “respectful.”

“Everyone around the table at the FOMC agrees that inflation is too high and that we want it to come down, and agrees that the labor market has softened and that there’s further risk,” Powell said. “Where the difference is how do you weight those risks and what does your forecast look like? And ultimately, where do you think the bigger risk is?”

Fratantoni said mortgage rates have inched higher over the past week, “slowing the pace of refinance applications at a time of year when the purchase market typically slows sharply.”

“Our forecast is for mortgage rates to stay within a fairly narrow range over the next few years,” he said. “This forecast becomes more likely as the Fed reaches the end of their cutting cycle next year.”

Contact Jim DuPlessis at JDuPlessis@cutimes.com.