According to Reuters, after three consecutive interest rate cuts by the U.S. Federal Reserve, investors now face an uncertain outlook for the country’s monetary policy in the coming year—an outlook shaped by persistent inflation, lack of data, and a change in leadership at the Federal Reserve.

On Wednesday, in a rare and divided vote, the Federal Reserve cut interest rates by a quarter percentage point, but simultaneously indicated that further reductions may be paused as officials await clearer signals regarding labor market conditions and inflation, which “remains somewhat elevated.”

The Fed’s expectation for a slower path of rate cuts contrasts with market forecasts of two 0.25% cuts in 2026, which would bring the interest rate down to about 3%.

Policymakers project only one rate cut for next year and another in 2027. Wednesday’s decision lowered the federal funds rate to a range between 3.50% and 3.75%.

Updated projections from the central bank showed that six policymakers opposed any rate cuts this year, and seven do not anticipate further cuts in 2026.

The future course of U.S. monetary policy depends on economic data that continues to be delayed due to the 43-day government shutdown in October and November.

This situation arises as the United States approaches midterm elections—elections likely to focus on economic performance—while President Donald Trump is calling for more aggressive rate cuts.

Art Hogan, chief market strategist at B. Riley Wealth, said: “I think it’s going to be much harder to guess what the Fed will do next year.”

Investors continue to face uncertainty about next year’s monetary policy because the trajectory of inflation and the strength of the labor market remain unclear.

According to the report, the Fed’s dual mandate (employment and price stability) has now become a point of debate and disagreement within the institution itself.

Source: Tasnim