A majority of over 100 economists surveyed by Reuters expect the U.S. Federal Reserve to cut its key interest rate by 25 basis points at its December 9-10 policy meeting to support a cooling labor market.
This strong consensus, which aligns with market futures pricing in a near-85% chance of a cut, stands in sharp contrast to the growing division among policymakers over whether the world’s largest economy needs further easing.
Following a 25-basis-point reduction in October, Fed Chair Jerome Powell cautioned against reigniting inflation and stressed that a December move was not a “foregone conclusion.” Inflation has remained above the Fed’s 2% target since March 2021, and a recent 43-day government shutdown that stalled key economic data releases has added to the uncertainty.
Despite the official hesitation, 89 of 108 economists in the November 28-December 4 poll predicted a rate cut. “I’m expecting the Fed will cut at the meeting next week,” said Thomas Simons, chief U.S. economist at Jefferies. He attributed Powell’s previous hawkish tone to a lack of data during the shutdown. “He can’t necessarily make the same argument again in December. We’ve seen enough support for continued cuts from most of the Board of Governors in their public comments since that meeting.”
New York Fed President John Williams has joined Governors Michelle Bowman, Christopher Waller, and Stephen Miran in supporting another cut, arguing it would provide insurance against further labor market deterioration without jeopardizing inflation goals. However, as many as five of the 12 voting members have publicly voiced opposition to more easing.
This lack of consensus is reflected in forecasts for 2026. While medians point to two additional cuts, bringing the federal funds rate to 3.00-3.25% by year-end, there is no clear majority on the timing for any quarter. Key concerns include fiscal worries stemming from a major tax-cut and spending bill, tariff uncertainties, and the central bank’s independence.
“Some of the reflationary forces at play…are going to keep the Fed a bit restricted in what they can do next year,” said Kevin Gordon, head of macro research at the Schwab Center for Financial Research.
Conflicting signals from committee members have also driven investors to hedge against policy uncertainty. A stark gap exists in inflation expectations, with consumer surveys showing it near 4% while market-based gauges sit far lower. “How people view inflation is still…the number one problem with affordability being the key operative word,” Gordon added.
According to poll medians, the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, is forecast to remain above 2% through 2027. The U.S. economy, after likely expanding 3.0% in the third quarter, is projected to slow to 0.8% in the current quarter and average 2.0% growth this year and in 2026.
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