Fed Slashes Rates to 3-Year Low Amid Deep Internal Rifts on Inflation vs. Jobs

The Federal Reserve delivered its third consecutive interest rate cut on Wednesday, lowering the benchmark federal funds rate by a quarter percentage point to a range of 3.5% to 3.75%—the lowest in three years—following a bitterly fractious meeting that highlighted profound divisions within the central bank. The decision, passed in a 9-3 vote, underscores the Fed’s delicate balancing act between bolstering a softening labor market and taming persistent inflation, which remains above the 2% target at around 3%.

Three dissenters marked the strongest internal revolt since 2019: Fed Governor Stephen I. Miran, a Trump ally on leave from the White House, pushed for a bolder 50-basis-point slash to aggressively support hiring; while Chicago Fed President Austan D. Goolsbee and Kansas City Fed’s Jeffrey R. Schmid advocated holding rates steady, citing elevated inflation risks.

Fed Slashes Rates

The “dot plot” of projections revealed even wider discord, with the median forecasting just one more quarter-point cut in 2026, but views ranging from aggressive easing (up to six cuts) to potential hikes by three officials.

Chair Jerome Powell described the debate as a “close call,” emphasizing that rates now hover near neutral, allowing the Fed to “wait and see” economic evolution. Markets cheered the move, with the S&P 500 rising 0.7% and two-year Treasury yields dipping to 3.54%. Yet, President Trump’s vocal criticism—demanding “at least double” the cut and accelerating plans to replace Powell in May 2026—intensified pressure, as he interviews candidates like Kevin Hassett for a more dovish leader. Analysts warn of heated future clashes, with Goldman Sachs noting “shadow dissents” from half the committee favoring no action. As uncertainty looms, the Fed also announced resuming Treasury purchases to maintain ample reserves, signaling vigilance on financial stability.

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