The Federal Reserve voted Wednesday to lower interest rates for the third straight meeting, signaling a cautious but ongoing shift toward easing monetary policy amid mixed economic indicators.
Details of the Latest Rate Cut
The Federal Open Market Committee voted 9-3 to reduce interest rates by a quarter point, bringing the target range down to between 3.5% and 3.75%. This marks a drop from the previous 3.75% to 4% range set during the October meeting.
What Analysts Expect Next
All eyes now turn to Chair Jerome Powell. Goldman Sachs analysts wrote this week that Powell is expected to signal that the “bar has risen” for any further reductions. They also predict at least five Fed officials will voice caution when discussing additional cuts.
Rate Forecasts for 2025
Traders appear skeptical that the Fed will cut interest rates again at its next meeting in January. According to CME’s FedWatch tool, there is a 72% chance rates will remain unchanged. Betting markets reflect a similar outlook, with Polymarket showing odds of 74% for rates to hold in January and slightly lower but still strong odds in March and April. Goldman Sachs noted that a January rate cut “could turn out to be appropriate” if economic data shows signs of decline.
Who Could Replace Jerome Powell?
President Donald Trump, who has been openly critical of Powell for not cutting rates sooner, said he expects to name a successor “probably early next year.” National Economic Council Director Kevin Hassett is currently the betting favorite. Other contenders include former Fed Governor Kevin Warsh, Treasury Secretary Scott Bessent and Fed Governor Christopher Waller. Hassett has argued there is “plenty of room” for rate cuts in 2026 and supported Wednesday’s reduction, saying officials could go beyond a quarter-point cut.
Shifts in Market Sentiment
Market optimism for a rate cut surged last month after New York Fed President John Williams indicated a reduction might be possible in the “near term.” This contrasted with Powell’s earlier warning that another cut was “not a foregone conclusion.” Before Wednesday’s vote, traders had priced in nearly 90% odds of a cut, up sharply from below 40% following Powell’s remarks.
Broader Signals from Fed Officials
Several Fed leaders have recently leaned toward supporting rate cuts. San Francisco Fed President Mary Daly reportedly backed a reduction, citing concerns that have shifted from inflation to a weakening labor market. Major financial institutions—including JPMorgan, Morgan Stanley, Nomura and Standard Chartered—also reversed earlier forecasts and now predict further easing.
Standard Chartered noted that economic data released after the government shutdown has been “unrevealing,” contributing to the growing support for a cut.
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