Fed Call: Central Bank Expects Third Rate Cut Amid Sharp Divisions; why follow-up relaxations seem uncertain – The Times of India

The US Federal Reserve is widely expected to cut borrowing costs this week, but deep divisions within the policy panel suggest further rate cuts will be harder to achieve, analysts say.Policymakers will meet on December 9 and 10 in a complicated economic context, with inflation still above the Fed’s 2% target even as the workforce weakens and unemployment rises. Economists expect Chairman Jerome Powell will support a quarter-point cut — the third this year — although dissatisfaction is likely to be unusually high, AP reported.Some analysts believe as many as three officials could vote against the cut, marking the most dissenting votes in six years. Only 12 of the 19 members of the Fed’s rate-setting committee vote on decisions, and several non-voting officials have also opposed further easing.“It’s just a very difficult time. Perfectly sensible people can come to different answers,” said William English, an economist at the Yale School of Management and a former senior Fed staffer, underscoring the challenge of building consensus.The debate has been complicated by scant official data following the prolonged US government shutdown, which delayed employment and inflation data. Normally, inflationary pressures argue against rate cuts, while signs of labor market weakness point in the opposite direction.Most economists now expect a “hawk-like cut” – a rate cut accompanied by indications that the Fed could pause to assess economic conditions. Financial markets are increasingly focused on the tone of Powell’s comments rather than the cut itself.Kansas City Fed President Jeffrey Schmid is expected to once again dissent in favor of keeping rates steady, possibly joined by St. Louis Fed President Alberto Musalem. Fed Governor Stephen Miran could oppose the quarter-point increase and instead argue for a larger half-point cut.Expectations for a December cut grew after New York Fed President John Williams said the recent rise in inflation appeared to be a temporary effect linked to rates, and that he still saw “room for further adjustment” in interest rates. According to CME Fedwatch, the market-implied probability of a downgrade is now about 89%.Powell’s leadership is also being tested politically, as President Donald Trump has repeatedly criticized the Fed chairman and indicated a new chairman will be named when Powell’s term ends in May.While concerns over unemployment – which rose to 4.4% in September – are driving support for a December cut, economists warn that further easing will depend on coming data. The Fed will review a backlog of employment and inflation reports before its next meeting in January, which could justify further cuts or force a pause.