Fed Set for Another Rate Cut as Recession Fears Overtake Inflation Worries
The Federal Reserve is heading into its December policy meeting with markets largely convinced that another rate cut is coming — not because inflation has suddenly vanished, but because signs of strain in the labor market are proving harder to ignore.
That shift in priority marks a notable departure from the Fed’s messaging earlier this year, when price stability dominated every decision.
Key Takeaways
- Analysts expect another rate cut as employment concerns overshadow inflation risks.
- The Fed faces one of its most divided votes in years, with different factions likely to dissent.
- Attention is shifting toward who replaces Powell, with Kevin Hassett seen as a favorite but Christopher Waller viewed as a stronger institutional fit.
Economists interviewed by Bloomberg say policymakers appear increasingly focused on insulating employment from a sharper downturn. The consensus view points to a third straight trim in borrowing costs, with expectations that the easing cycle could resume in spring 2026 after a pause to gauge whether the slowdown is stabilizing or accelerating.
A Central Bank Wrestling With Two Different Threats
The unusual dynamic facing the Fed is that neither of its mandates — inflation or jobs — provides clarity.
Corporate layoffs at major firms like Verizon and Amazon suggest hiring is cooling, yet government data is incomplete thanks to weeks-long shutdown delays. The last meaningful inflation update showed annual consumer prices rising 3% — still higher than target, but not aggressively so.
That data vacuum has pushed officials into more philosophical disagreement than at any time in recent memory. Some regional presidents argue that tariffs and supply frictions could reignite inflation, while others believe restrictive rates are now the larger danger to growth.
A Messy Vote Likely Ahead
The harder the policy environment becomes, the less unified the Fed has seemed.
Surveyed analysts widely expect dissenting votes at the meeting, a rarity for a central bank that prides itself on consensus decision-making.
Kansas City Fed leader Jeff Schmid is viewed as almost certain to object again after opposing October’s cut. St. Louis Fed President Alberto Musalem may also resist new easing, citing escalating price risks.
Ironically, Governor Stephen Miran is expected to dissent from the opposite end of the spectrum — by arguing that cuts should be larger than what Chair Jerome Powell favors.
Powell, meanwhile, is expected to tell reporters that the committee remains data-dependent and cautious, even as it opts to ease one more time.
The Bigger Plotline: Who Runs The Fed Next?
Hovering above the policy debate is a political one: President Donald Trump must soon choose Powell’s successor.
National Economic Council director Kevin Hassett is viewed as the frontrunner, though many economists surveyed believe Governor Christopher Waller would be better received inside the institution due to his relationships and policy experience.
Trump has hinted he will reveal his choice early next year, setting up a pivotal leadership transition just as the central bank enters its most divided phase in years.
For now, one thing appears clear — the Fed is preparing to cut again, not because inflation has been conquered, but because recession risk is knocking louder than before.
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