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Divided Fed cuts rates as expected, but sees only one reduction in 2026
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Divided Fed cuts rates as expected, but sees only one reduction in 2026
Mar 10, 2026 10:06 PM

NEW YORK, Dec 10 (Reuters) - The Federal Reserve cut interest rates on Wednesday in another divided vote, but signaled it will likely pause further reductions in borrowing costs as officials look for clearer signals about the direction of the job market and inflation that "remains somewhat elevated."

New projections issued after the U.S. central bank's two-day meeting showed the median policymaker sees just one quarter-percentage-point cut in 2026, the same outlook as in September, with inflation expected to slow to around 2.4% by the end of next year even as economic growth accelerates to an above-trend 2.3% and the unemployment rate remains at a moderate 4.4%.

MARKET REACTION:

STOCKS: S&P 500 rose after the Fed rate cut, last up 0.2%.

BONDS: U.S. Treasury yields slightly extended their fall, with the 10-year yield last down at 4.17%.

FOREX: The dollar index extended its fall, but last down 0.3%.

COMMENTS:

ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK:

    "It's definitely a hawkish cut, not so much in the fact that we had two dissenters that wanted to stand pat, but if you look at the dot plot, there were six of them that penciled in no rate cut at this meeting. So the dot plot is even more hawkish than the two dissenters."

"I think they just took the bar up a notch for the next meeting for a rate cut."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

"The quarter percent rate cut was in line with expectations. Three dissents were a little bit better than the previous voting."

"The 25 basis-point rate cut was widely expected and the economic projections remain optimistic. I would view this as a semi-dovish, cautious statement."

"Markets are gaining now. All three indices are on the plus side. The markets are applauding this decision."

"(The Fed) is being cautious. Of course, you know, they're still waiting for more economic news to come out and waiting to see how the labor market is shaping up and there's still elevated inflation."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"The divisions on the FOMC aren't as deep as feared. Cutting 25 bps and doing some end-of-year balance sheet management isn't surprising. What's surprising is that the statement removed 'remained low' in reference to the unemployment rate. Low is the new normal given the demographic and immigration trends, so they have to be more concerned about the changes in the unemployment rate than the level of the unemployment rate now until they figure out what is or isn't low. The median inflation forecast for 2026 fell to 2.6%. The inflation-effects of tariffs might not be as much as they originally feared."

"Although the dot plot indicates there could possibly be one more cut in 2026, it's not like they'll fade into the background quietly."

MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO: (via email)

"The Federal Reserve's 25-basis point rate cut signals a measured stance that could encourage renewed credit engagement among some consumers, particularly when considering the cumulative impact of all recent small rate reductions. Consumers who have delayed borrowing may find this environment more favorable. Lower borrowing costs can begin to ease household budgets, providing relief from inflationary pressures and reducing financial stress."

"While the decrease is incremental, improved affordability may help stabilize delinquency trends. Lenders should prepare for potential growth while maintaining disciplined underwriting and account management strategies to mitigate risk."

(Compiled by by the Global Finance & Markets Breaking News team)

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