The main event this week was the Federal Reserve’s much anticipated interest rate announcement. While policymakers elected to push ahead with a third consecutive quarter-point rate cut – bringing the target range to 3.50%-3.75% – the move came amid an increasingly divided FOMC (Chart 1). Uncertainty over the extent and timing of future rate cuts didn’t stop the S&P 500 from briefly notching a new all-time high but pared those gains towards the end of the week. The yield curve steepened by roughly 10 bps, with the 10-year currently sitting at 4.19%. 

Accompanying the statement, the FOMC also released a revised set of economic forecasts, known as the Summary of Economic Projections (SEP). The SEP represents the median of the individual forecasts submitted by FOMC participant. Relative to the September projection, economic growth for 2025 saw a very modest upgrade (1.7% vs. 1.6%), while there was a notable upward revision to 2026 (2.3% vs. 1.8%). The expected trajectory for the unemployment rate was unchanged, while the inflation forecast is expected to remain above the 2% target through 2027 despite being nudged a tick lower in both 2025 and 2026. Importantly, the median projection on the federal funds rate remained unchanged at 3.6% for 2026 and 3.1% for 2027 – suggesting just one additional cut in each of the next two years (Chart 2). However, there was considerable dispersion across those projections, with the range of estimates for the appropriate level of the policy rate by the end of 2026 spanning 175 bps – a wider range than in September. 

The growing divide among policymakers was further underscored by the fact that three participants dissented against December’s decision. Regional Fed Presidents Schmid and Goolsbee favored keeping the policy rate unchanged, while Governor Miran voted for a larger 50 bps cut. But as seen in Chart 2, there were a total of four Fed members who came into the meeting thinking a cut was not required. 

The subtle shift in the dots wasn’t lost on market participants. Come January, the four regional presidents who are currently voting FOMC members (Goolsbee, Schmid, Collins, and Musalem) will be replaced by Paulson of Philadelphia, Hammack of Cleveland, Kashkari of Minneapolis and Logan of Dallas. While we don’t know for certain if any of the incoming Fed Presidents ‘quietly’ opposed the December cut, recent speeches by both Logan and Hammack have struck a more hawkish tone. Moreover, Kashkari had advocated for a pause on rate cuts ahead of the October meeting. This suggests that the hawkish tilt from Fed presidents isn’t going away despite the turnover in voting members.

However, this needs to be balanced against a new Fed Chair, who will be in seat May 2026, and is likely to have a more dovish policy stance. Moreover, should Chair Powell elect to not serve out the remaining two years of his term on the board of governors, it will create another vacancy for which President Trump can appoint a new board member. The takeaway from all this is that the division among FOMC members is only likely to deepen next year, putting in question both the timing and extent of further policy easing.