Fed cuts rates as expected but signals pause in policy easing

The US Federal Reserve cut interest rates by 25 basis points on Wednesday in a widely expected decision but signaled it would likely stay on hold in early 2026, looking for clearer signals about the situation in the labor sector and still elevated inflation.

The central bank’s latest expectations for one rate cut in 2026 and one in 2027 are in direct collision with previous projections for two rate cuts next year and brought more uncertainty to the monetary policy outlook, also influenced by impending Fed leadership change.

Further central bank’s steps on monetary policy will be also dependent on delayed economic data due to  federal government shutdown in October and November, as well as the fact that the US heads into a midterm-election year that will shift focus on economic performance under President Donald Trump’s administration, particularly that Trump continues to urge policymakers for sharper borrowing cost reductions.

President Trump said on Wednesday that the Federal Reserve’s interest rate cut was small and that it could have been larger, adding to recent dovish comments of the front-runner to be the next Fed chair, that there is plenty of room to cut interest rates further.