Fed Cuts Rates But Is Now 'Well Positioned' To Wait, Powell Says

The Federal Reserve cut its benchmark rate again at its final meeting of the year Wednesday. 

The central bank waded through an economic outlook clouded by the longest government shutdown in U.S. history to trim 25 basis points off the federal funds rate. The move was widely expected but is nonetheless a relief for markets after Chairman Jerome Powell said in October that views inside the Fed were split on the path ahead. 

That disagreement was evident in Wednesday’s 9-3 vote to cut rates, the most divided decision of the current cycle. Still, Powell signaled that Fed officials were getting more comfortable with current rate levels. 

“The Fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves,” Powell said at a press conference Wednesday, describing the point at which rates are neither stimulating nor hindering the economy.

Stephen Miran, who was picked by President Donald Trump and joined the Fed in September, voted in favor of a 50-basis-point cut. Austan Goolsbee joined Jeffrey Schmid, who for the second consecutive meeting voted to hold rates flat.

Powell said the two sides of the Fed’s dual mandate of maximum employment and stable prices have been in tension for an unusually long time, leading to differences in opinion across the Fed. 

Still, he repeated language about being well positioned to act and that the current fed funds rate was around neutral across the press conference as if it were his mantra.

“When people are writing down their estimates of policy and where it should go, it’s either holding here, or cutting a little, or cutting more than a little,” Powell said. 

Fed officials also broadly predicted a measured pace of rate relief in 2026 in a new dot plot released along with Wednesday’s rate decision that put the median position at a single rate cut next year.

But the midpoint obscures the broad range of outcomes officials foresee. Only four Fed members expect there to be one rate cut in 2026, while seven indicated rates should remain flat. Eight members expect more than one cut, including one who predicts a combined 150 basis points in rate relief across 2026. Each Fed member's specific position isn't disclosed.

“All across the committee, people see the picture pretty similarly but see the risks quite differently,” Powell said.

Ahead of Wednesday's meeting, money market yields were already pricing in two cuts in 2026, and yields on 10-year Treasury bonds, a common benchmark to price all sorts of debt, were trading higher than they were priced before the Fed cut rates in October. 

Investors had priced the odds of a rate cut at 89% since the start of the week, up from a roughly even split in the middle of November, according to CME Group’s FedWatch tool. Powell warned investors after the Fed’s October meeting that an end-of-year rate cut was “not a foregone conclusion,” and the government shutdown gave investors less visibility into the health of the economy. Still, market consensus shifted strongly toward a rate cut by the end of last month.   

“Today's decision to cut rates was fairly well baked in, and supports the positive momentum we've been seeing in commercial real estate as transaction activity continues to accelerate and positive leverage has become more available for investors,” Allan Swaringen, CEO of JLL Income Property Trust, said in an email. 

The 43-day government shutdown forced the Federal Open Market Committee, tasked with maintaining stable prices and maximum employment, to act without access to the usual official government data.

The core personal consumption expenditures index, the Fed’s preferred inflation gauge, is lagging by a month. The PCE sat at 2.8% in September, according to government data released on Dec. 5 — around the time that October data typically is published — up slightly from the prior month and ahead of the Fed’s long-stated 2% target rate. 

Fed officials’ concern over inflation has waned despite it running above target because the majority of the central bank's members continue to believe that price increases from Trump’s tariff regime will be transitory and not add long-lasting pressure to inflation, Powell said. 

“If you get away from tariffs, inflation is in the low twos. It's really tariffs that's causing the most of the inflation overshoot,” Powell said.

The Supreme Court is weighing the legality of much of the existing tariff regime, but Powell said he hadn’t considered the impact that the fees being overturned would have on the economy.

“The best thing we can do there is both to support economic activity but also make sure that, when tariff inflation goes down and dissipates, inflation lands around 2%,” he said.

The Bureau of Labor Statistics isn’t releasing a jobs report for October because of the government shutdown, and it pushed out reporting for November to now come after the Fed meeting. That report will include some October data. 

Payroll from ADP showed the private sector added 42,000 jobs in October but shed 32,000 roles in November. The BLS released the Job Openings and Labor Turnover Summary, or JOLTS, Tuesday showing that job openings and hirings stayed relatively flat in October, while layoffs modestly ticked up. 

The Fed is tracking the slowdown in the labor market, but Powell noted that immigration policy had also turned labor supply negative. Job growth figures are also overstated and are papering over a weaker labor market, he said. 

“A world where job creation is negative, I just think we need to watch that situation very carefully and be in a position where we're not pushing down on job creation with our policy,” he said. 

Alex Pette, president at Hoya Capital Real Estate, said market gains from artificial intelligence were obscuring a gloomier economic reality and that inflation data was being artificially propped up by shelter costs, an inherently delayed data point. He said the federal funds rate remained as much as 100 basis points above neutral. 

“If the goal of this rate cycle is to avoid the abrupt crisis-driven rush back to zero that past tightening cycles necessitated, we think that the Fed needs to get policy to neutral before and not after a layoff cycle begins,” Pette said. 

Powell said Wednesday the central bank felt like it was already in neutral territory and sounded a less aggressive note.

“We haven't made any decision about January, but, as I've said, we think we're well positioned to wait and see how the economy performs.”