The Federal Reserve is likely to cut interest rates for the third time this week, and there are still variables in the policy path in 2026

After weeks of intense market debate and doubts about whether the Federal Reserve (Fed) will launch its third interest rate cut this year, the current consensus among mainstream Wall Street institutions and academic circles has basically formed: The world's most influential central bank will most likely implement a 25 basis point interest rate cut at the Federal Open Market xm-forex.committee (FOMC) interest rate meeting on Wednesday - even if this decision may face obvious differences within the xm-forex.committee.

The Federal Reserve’s interest rate decisions are subject to a vote by the FOMC, and “divergent interest rate cuts” are not uncommon in history. Especially at a stage when inflation has not yet been fully controlled and economic growth is showing diverging signals, members often hold different positions based on different judgments on inflation risks and the job market, which also makes the decision to cut interest rates more uncertain.

Alan Blinder, former vice chairman of the Federal Reserve and professor of economics at Princeton University, said: "This is a difficult decision, but I do think an interest rate cut is more likely... If this is a 'hawkish interest rate cut,' I would not be interested." Outside. "The so-called "hawkish interest rate cut" means that this week's interest rate cut may be accompanied by a clear warning from the Federal Reserve to the market, reminding the market not to expect the central bank to start a "continuous interest rate cut cycle." Subsequent policy adjustments will still be highly dependent on real-time changes in inflation and employment data to avoid excessive market pricing of easing expectations.

As a senior expert who has been deeply involved in the formulation of Federal Reserve policy, Alan Blinder further pointed out that considering the current obvious differences between "hawks" and "doves" within the FOMC, this interest rate decision is likely to have "two-way opposition". Among them, the "hawks" are worried about a rebound in inflation and advocate cautionCut interest rates; "Doves" are worried about the economic slowdown and support moderate easing. The differences between the two parties may cause some members to oppose interest rate cuts, while others believe that the rate cut is insufficient.

Luke Tilley, chief economist at Wilmington Trust, also holds the same view and believes that the Federal Reserve (Fed) will cut interest rates as scheduled on Wednesday. He predicted that Fed Chairman Jerome Powell will use the same framework as last time to explain the interest rate cut at the post-meeting press conference. On the one hand, he will publicly acknowledge the differences of opinion within the FOMC on further interest rate cuts. On the other hand, he will emphatically remind the market not to assume that the central bank will continue to cut interest rates.

This "ambiguous statement" by Jerome Powell is a xm-forex.common strategy for the Federal Reserve's "forward guidance", and its core purpose is to retain flexibility for policy adjustments. In this way, we can avoid excessive tightening that leads to economic decline, and also prevent excessive easing from pushing up inflationary rebounds. It has been used many times in history to balance market expectations.

Before this week’s FOMC meeting, many Federal Reserve (Fed) officials have released clear signals through public speeches, and the differences in positions are clearly visible. Boston Fed President Susan Collins (Susan Collins) and Kansas City Fed President Jeff Schmid (Jeff Schmid), as representatives of the hawkish stance, made it clear that there is no strong need to cut interest rates at the moment. Jeff Schmid bluntly stated at the energy conference on November 15: "I don't think another cut in interest rates will do much to make up for the cracks in the labor market. These pressures are more likely to stem from structural changes in technology and immigration policies. However, cutting interest rates may It will have a more lasting impact on inflation, because it will make the outside world increasingly question our xm-forex.commitment to achieve the 2% inflation target." He emphasized that the current inflation is still too high and widespread, and cutting interest rates too early may make high inflation more entrenched. This is also the core basis for his opposition to further interest rate cuts in the near future. The two share the same view that the current U.S. core inflation rate is still a full percentage point higher than the Fed's long-term target of 2%. Cutting interest rates prematurely or excessively may lead to a rebound in inflation and violate the Fed's "inflation priority" policy mission.

Chicago Fed President Austan Goolsbee (Austan Goolsbee) holds a neutral to hawkish stance. He has repeatedly stressed the need to maintain policy patience in the face of sticky inflation, especially regarding "front-loaded interest rate cuts" (concentrated implementation of multiple interest rate cuts in the short term). Da Da was obviously hesitant and made it clear that "before the inflation data continues and steadily falls back to the target range, there should be no rush to start a cycle of intensive interest rate cuts. It is necessary to further observe the changing trends in the prices of medical, insurance and other services." He believes that it is necessary to wait for more inflation data to corroborate the downward trend before adjusting the policy direction. Lorie Logan further strengthened her hawkish stance on November 14, saying, “Unless we see clear evidence of a faster fall in U.S. inflation, we will not support another cut in December.It also pointed out that inflation is currently on an upward trend and it will take time to return to the 2% target. In contrast, New York Fed President John Williams, as FOMC Vice Chairman and a core member of the Fed leadership, is a representative of the dovish stance. In a public speech on November 21, he strongly hinted that he may support an interest rate cut, saying that "there is room for further adjustments to the federal funds rate target range in the short term to bring the policy stance closer to the neutral range." "

It is worth noting that as the vice chairman of the FOMC, the New York Fed President's statements are often regarded by the market as a "policy vane" and are usually highly consistent with Jerome Powell's core ideas. Therefore, his signal of support for an interest rate cut has significantly increased the market's expectations for this interest rate cut. And you are paying attention to the Dallas Fed President. LorieLogan is not a dove, but has a clear hawkish stance. This misunderstanding may stem from a one-sided interpretation of his remarks - LorieLogan made it clear on October 31 that "the Fed should not have cut interest rates at that time, and it would not be appropriate to cut interest rates again in December", emphasizing that the "overall balance" of the labor market does not need to be With policy support, inflation may remain above the 2% target for a long time.

As a senior hawkish official, Loretta Mester, the former president of the Federal Reserve Bank of Cleveland, has clear public xm-forex.comments to support her position: She clearly analyzed that at an industry forum in mid-November, John Wil Liams's statement has most likely been approved by Jerome Powell, so it is judged that the December FOMC meeting will cut interest rates again by 25 basis points, but she herself made it clear that she will not support this move at the moment, saying bluntly: "Except for the September interest rate forecast, which already includes this arrangement, I really can't see a sufficient reason for this interest rate cut. "

Loretta Mester further emphasized that we should wait and see until the beginning of next year and wait until more fourth-quarter economic data is released before adjusting the policy direction based on the actual performance of the economy. This view was also reflected in her subsequent media interviews. She mentioned " "Inflation remains sticky and there is a time lag in policy effects. The current rush to cut interest rates may break the downward trend in inflation." This appeal is highly consistent with hawkish officials such as Jeff Schmid, that is, before inflation has not fully fallen back to the target range, policy easing needs to be "restrained" to avoid Repeating the mistakes of the last round of high inflation.

At the same time, Alan Blinder also issued an important warning that if the central bank cuts interest rates again this week, it may face the risk that inflation will be more difficult to fall back. He further explained that the current stickiness of inflation mainly xm-forex.comes from the service sector. Prices are already falling slower than xm-forex.commodity prices. If the policy is relaxed too early, it may solidify inflation expectations and even trigger persistent inflation. This will force the Federal Reserve to restart interest rate increases in the future, causing a greater impact on the economy from October to November.Affected by the ongoing U.S. government shutdown, the release of many key economic data has been severely delayed. During the government shutdown, data publishing agencies such as the Bureau of Labor Statistics (BLS) and the Department of xm-forex.commerce suspended operations, resulting in the inability to timely xm-forex.compile and release core data such as inflation, employment, and GDP. This significantly hindered the Federal Reserve's (Fed) policy decision-making, because the FOMC's interest rate adjustments are highly dependent on real-time and accurate economic data.

As the preferred inflation indicator of the Federal Reserve, the weight of the personal consumption expenditures (PCE) index is more in line with residents’ actual consumption structure and can better reflect the true level of inflation than the CPI. However, its September data was released two months later. Data show that the core PCE inflation rate, which excludes volatile food and energy prices, rose by 2.8% in September, down 0.1 percentage points from August. Although it showed a slight downward trend, it was still well above the 2% target. Based on this, Fed officials currently expect the full-year inflation rate to reach 3.1%, which means that it will still take a long time for inflation to fall back to the target range.

In terms of employment data, it is also affected by the government shutdown and shows obvious fluctuations. There were 119,000 new jobs in September, a significant rebound from the 4,000 loss in August. However, this data is already a "lag data" and cannot reflect the true situation of the job market from October to November.

In contrast, the "Beige Book" released by the Federal Reserve (Fed) is more timely. This report is formed by collecting feedback from businesses and xm-forex.communities in 12 reserve areas across the United States, and is an important reference for FOMC decision-making. It shows that there are obvious signs of weakening in the U.S. job market in the first two weeks of November. The number of layoffs has increased. Employers in many industries have begun to implement hiring freezes. Some xm-forex.companies have adjusted employee working hours (such as reducing overtime and shortening working hours) to control labor costs.

What is more noteworthy is that some xm-forex.companies have clearly pointed out that artificial intelligence technology has begun to replace entry-level positions (such as administration, data entry, basic customer service, etc.), or has significantly improved the productivity of existing employees, thereby reducing the need for new recruitment. At present, Fed officials have made it clear that they will receive more real-time economic data for November (including non-farm employment, CPI, etc.) within a week after this FOMC meeting. These data will provide key basis for subsequent policy adjustments.

There are significant differences in the forecasts of various parties in the market regarding the Federal Reserve's (Fed) policy path in 2026. The core differences stem from different judgments on economic growth, the job market and inflation trends. Luke Tilley of Wilmington Trust holds a radical easing expectation. He predicts that interest rates will be cut three more times at the next three FOMC meetings (January, March, and May 2026), with a total of 75 basis points of interest rate cuts.

The core basis is that the U.S. job market is accelerating its weakening and is expected to deteriorate further. Luke Tilley's team estimates that 154,000 government workers accepted buyouts and resigned from the employment list in October. This factor may have caused the unemployment rate to increase by nearly 0.1 percentage point in November.points, rising to 4.5%; in addition, according to the latest data from the U.S. Bureau of Labor Statistics (BLS), except for the rigid demand industry of health care, U.S. private sector employment growth has shown negative growth for two consecutive months, which is an important signal of a recession in the job market.

Aditya Bhave of Bank of America put forward the view of leadership-driven easing. He predicted that interest rates will be cut twice more in June and July next year, totaling 50 basis points. However, he emphasized that the core driver of this prediction is the change in the leadership of the Federal Reserve, not the demand for economic fundamentals. Aditya Bhave pointed out that if the Federal Reserve cuts interest rates as scheduled next week, under the background that fiscal stimulus policies (such as government infrastructure investment, tax cuts, etc.) are about to take effect next year, it may lead to excessively loose policies and intensify the risk of a rebound in inflation. This view is consistent with the concerns of most major Wall Street banks that the xm-forex.combination of "monetary easing + fiscal stimulus" may break the current downward trend in inflation.

Accenture’s Amir Bagherpour holds a moderate easing expectation. He predicts that after this week’s interest rate cut, there will only be one to two more interest rate cuts next year (25-50 basis points). This outlook is based on four key assumptions: core PCE inflation next year will remain at 2.5%-2.7% (slowly falling but still above the target), GDP growth will be at 1.5%-1.8% (low growth, avoid recession), the unemployment rate at the end of the year will be 4.4%-4.6% (moderate increase, not reaching the recession threshold), and monthly new jobs will average 75,000-125,000 (enough to maintain basic stability in the labor market).

As the core focus of this FOMC meeting, Federal Reserve (Fed) officials will release the latest quarterly economic forecast summary (SEP) on Wednesday, which will contain three key contents: the latest interest rate forecast dot plot (including the outlook for the full-year interest rate path in 2026), the latest forecasts for inflation, GDP and unemployment in the next three years, and an assessment of economic risks.

At the same time, Federal Reserve Chairman Jerome Powell will hold a post-meeting press conference as usual. His core task is to interpret the meeting resolutions, elaborate on policy ideas, and respond to market questions about the policy path in 2026. The market will focus on his specific statement on "hawkish interest rate cuts", his views on the stickiness of inflation, and his judgment on the weakening trend of the labor market. These contents will directly affect the short-term trends of global stock markets, bond markets, and foreign exchange markets.

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