📉 Fed Poised for ‘Hawkish Cut’ Amid Deep Divisions

The Federal Reserve is widely anticipated to announce its third consecutive interest rate cut on Wednesday, a 25-basis-point reduction that would lower the benchmark federal funds rate to a range of 3.50% to 3.75%. However, the decision from the Federal Open Market Committee (FOMC) will likely be one of the most contentious in recent memory, reflecting a sharp division among policymakers on the need for further monetary easing.

Market indicators, including the CME FedWatch Tool, show an overwhelmingly high probability—around 87%—of a quarter-point cut. Mounting concerns over the softening labor market primarily drive this expected move. The unemployment rate has edged up to 4.4%, and recent alternative data, such as the ADP National Employment Report, suggest a contraction in private payrolls. For the dovish wing of the Fed, these signals, along with moderating GDP growth, point to the need to lower borrowing costs to support continued economic expansion and avoid a sharper downturn.

However, the committee’s decision is complicated by an uneven economic backdrop. Inflation remains a significant concern, still running above the Fed’s 2% target. This persistent inflation is the central argument for the FOMC’s more “hawkish” members, who are expected to cast dissenting votes against the rate cut—a rare display of internal conflict. Analysts suggest the number of dissenting votes could be the highest in six years, highlighting the deep philosophical split over the central bank’s dual mandate of maximum employment and price stability.

To bridge this internal divide and manage market expectations, Chair Jerome Powell is expected to deliver what economists are calling a “hawkish cut.” This strategy involves coupling the announced rate reduction with a policy statement or commentary that signals a potentially slower, more cautious path for future rate cuts in 2026. The focus for investors will therefore shift to Powell’s post-meeting press conference and the release of the Summary of Economic Projections (SEP), or “dot plot,” which will reveal policymakers’ individual forecasts for the federal funds rate through next year. The dot plot will be scrutinized for clues on whether a majority of members still anticipate a pause after Wednesday’s move.

The outcome carries significant implications. For borrowers, a rate cut is generally positive, lowering loan costs for credit cards and home equity lines of credit and potentially nudging mortgage rates closer to 6%. For the stock market, lower borrowing costs typically provide a tailwind, but the anticipated hawkish guidance could temper any immediate “Santa Claus rally.” Ultimately, with a backlog of key government economic data following a recent government shutdown, the Fed is operating with limited visibility, making the communication around Wednesday’s cut as critical as the cut itself for setting the tone for 2026.

Sources

• Financial Express: All eyes on US Federal Reserve’s FOMC meeting on December 10
• Investopedia: What to Expect in Markets This Week: Fed Interest Rate Decision and Powell Remarks; Earnings From Oracle, Broadcom
• Investopedia: The Fed’s Two-Day Meeting Starts Today—Here’s What You Need to Know
• Norada Real Estate: Fed Interest Rate Forecast Signals High Probability of December 2025 Rate Cut
• PBS NewsHour: A sharply divided Federal Reserve is set to cut interst rates, but may signal a pause to come