Dive Brief:

• The Federal Reserve on Wednesday, in a decision with three dissents, trimmed the main interest rate by a quarter point to a range between 3.5% and 3.75% as concerns about weakness in the job market overrode worries that inflation persists above the central bank’s 2% target.
• Fed officials in a median projection forecast just one quarter-point reduction in the federal funds rate in 2026. They expect that their preferred measure of inflation — the personal consumption expenditures price index less volatile food and energy prices — will end 2026 at 2.5%, 0.1 percentage point lower than their September estimate. They raised their forecast for economic growth next year to 2.3% from 1.8% in September. Central bank officials also estimate that the unemployment rate will end 2026 at 4.4%, no change from their September forecast.
• “Job gains have slowed this year, and the unemployment rate has edged up through September,” the Federal Open Market Committee said in a statement after a two-day meeting, adding “downside risks to employment rose in recent months.” Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid cast dissenting votes, saying they favored no rate change, while Fed Governor Stephen Miran dissented while calling for a half-point cut in the benchmark rate.

Dive Insight:

Fed officials for months have tried to navigate the constraints of what they call “two-sided” risks, as stubborn inflation and a softening labor market imperil their efforts to ensure price stability and full employment in line with a congressional mandate.

By reducing borrowing costs, policymakers risk spurring inflation. By holding rates steady, they may fail to avert a surge in unemployment. The 43-day government shutdown denied them the timely data that bolster confidence in monetary policy decision-making.

The jobless rate, at 4.4% in September, has inched up during the past several months. Hiring has also slumped across the economy. At the same time, inflation for months has held firm at around 3%.