The Fed voted 9-3 to cut the federal funds rate by 25 bps on Wednesday, bringing the rate down to a range of 3.50%-3.75%. The three dissenting votes marked the highest number since 2019, casting doubt on whether the central bank will lower rates again when it meets on January 28, 2026.
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CME’s FedWatch tool reflects similar expectations, putting the odds of an unchanged rate in January at 73.4% and a 25 bps cut at 26.6%.
Fed Maintains 2026 Rate View, Eyes Labor and Inflation Risks
Furthermore, the Fed’s median interest rate forecast for 2026 held steady at 3.4%, which implies just one rate cut during the year. In addition, six Federal Open Market Committee (FOMC) members project a 2026 target rate above 3.5%, while 12 forecast a rate below 3.5%. The lowest estimate sits between 2.00% and 2.25%, and the highest is between 3.75% and 4.00%.
The state of the labor market and inflation will largely affect these forecasts. Fed Chair Jerome Powell said on Wednesday that both employment and inflation risks have heightened, which will push the Fed to make decisions on a meeting-to-meeting basis.
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