Powell’s hawkish talk could just be talk. Why the Fed might not be done cutting rates.

Subscribe to enjoy similar stories. The Federal Reserve lowered interest rates for the third time in four months on Wednesday while signaling that further easing is far from assured.

The move highlighted a tension that will define policy in the months ahead: whether officials continue cutting rates to support a cooling labor market or hold steady out of concern that inflation remains above the Fed’s 2% target. How the Fed balances those competing risks will become a central question at its next meeting in January and throughout 2026.

Despite Wednesday’s quarter-point interest rate cut to a range of 3.50%-3.75%, the central bank’s latest economic projections show only one additional reduction next year, unchanged from September. Markets, by contrast, continue to price in just over two cuts in 2026, reflecting investors’ expectations that labor-market softness will ultimately outweigh lingering inflation pressures.

Fed officials, however, upgraded their 2026 growth forecast to 2.3% from 1.8% in September, lowered inflation projections, and kept unemployment expectations broadly steady, a combination that suggests they see less urgency to ease further unless conditions deteriorate. The December decision also revealed unusual division among policymakers.

Nine officials supported the cut, two preferred to hold rates steady, and one favored a larger half-point move. Chair Jerome Powell said monetary policy is now “within a broad range of estimates of neutral" and that officials are “well-positioned to wait and see how the economy evolves." Asked whether rate increases remained possible, he said, “I don’t think that a rate hike is anybody’s base case at this point." Powell framed the latest move as a response to shifting