The Federal Reserve will announce its latest interest rate adjustment on Wednesday, potentially cutting borrowing costs for the third time this year in an effort to boost sluggish hiring.
Top Federal Reserve officials have shown an unusual degree of public disagreement over a potential interest rate cut. Inflation has risen in recent months along with a slowdown in hiring, raising the risk of an economic double whammy known as “stagflation.”
The Federal Reserve is caught in a bind, as the central bank must balance a dual mandate to keep inflation under control and maximize employment. To address pressure on both goals, the Federal Reserve primarily has a single tool: interest rates.
If the Federal Reserve keeps interest rates stable as a means of protecting against tariff-induced inflation, it risks a deeper labor market slowdown. On the other hand, if the Federal Reserve cuts rates to stimulate the economy amid a slowdown in hiring, it threatens to boost spending and worsen inflation.
“We have a tool,” Federal Reserve Chairman Jerome Powell said at a news conference in Washington, DC, in October. “You can’t address both at the same time.”
Sentiment shifted lately in favor of a rate cut as some influential central bankers expressed openness to the move, futures markets showed.
The chances of a quarter-point interest rate cut are around 87%, up from as low as 30% last month, according to CME FedWatch Toola measure of market sentiment.
The Federal Reserve logo is visible on the William McChesney Martin Jr. Building on December 9, 2025 in Washington.
Andrew Harnik/Getty Images
The outlook appeared to change in response to a murky jobs report and public statements from two of Powell’s allies on the committee tasked with setting the rates.
Last month, a September jobs report sent mixed signals about the labor market. Employers added many more workers than expected in September, although hiring did not reach a breakneck pace. Meanwhile, the unemployment rate rose to 4.4%, a historically low figure but the highest recorded since October 2021.
New York Federal Reserve Chairman John Williams, who often agrees with Powell, days later expressed his willingness to cut rates and told reporters that he still saw “room for further tightening in the near term.”
Shortly after, San Francisco Federal Reserve President Mary Daley took a similar position, telling reporters that she sees room “for further tightening in the near term.” Daley, who will not vote on interest rates this year, is widely considered a Powell supporter.
An interest rate cut of a quarter point would reduce the Federal Reserve’s benchmark rate to a level between 3.5% and 3.75%.
That figure would mark a significant decline from a peak reached in 2023. At the beginning of the pandemic, interest rates stood at 0%.
Still, a reduction in interest rates could offer some relief to mortgage and credit card borrowers. However, savers risk losing income as interest rates for accounts held at banks fall.
