Fed Interest Rate Meeting Begins With Policymakers Sharply Divided on Another Cut

Federal Reserve officials are beginning their December meeting to set interest rate policy, with policymakers sharply divided on the correct path forward.

Fed Chair Jerome Powell may wield a decisive voice when the 12 members of the Federal Open Market Committee vote on a new benchmark interest rate Wednesday, with the camps opposing and in favor of a rate cut holding roughly equal strength.

Five FOMC voters have voiced skepticism of or outright opposition to further rate cuts, which they fear could reignite inflation while doing little to prevent further job losses.

Four members are seen as solidly in favor of cutting rates, after arguing that weakness in the labor market is the biggest threat to the economy while downplaying the risk of renewed inflation.

Powell, as well as two other members who typically follow his vote, has played his cards close to the vest, offering no public comments about his preference for rate policy at the December meeting.

"In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation," Powell said after the last FOMC meeting in October, in his last public comments about economic conditions. "There is no risk-free path for policy as we navigate this tension between our employment and inflation goals."

The Fed uses higher interest rates to fight inflation, and lower rates to boost the labor market, in line with its dual mandate of price stability and maximum employment. While the Fed doesn't set long-term rates like mortgage rates directly, central bank policy has an important influence on those rates.

FOMC seen as sharply divided on rate cut

At the October meeting, the FOMC voted to reduce the overnight benchmark rate by a quarter percentage point, taking it to a range of 3.75% to 4%. There were two dissents in opposite directions: Fed Gov. Stephen Miran voted in favor of a larger half-point cut, while Kansas City Fed President Jeffrey Schmid voted to leave the policy rate unchanged.

Since then, the divisions have only deepened, with Schmid directly opposing further cuts, and four other members voicing hawkish caution about cutting rates too quickly. Meanwhile, FOMC heavyweights such as Gov. Chris Waller and New York Fed President John Williams have made dovish calls for further easing.

As a result, the outlook for a December rate cut has swung wildly in financial and prediction markets, with the odds of a cut dropping from 98% to around 30% in late November, before surging back to 90% last week.

“The lead-up to this meeting has been marked by unusually vocal and often conflicting messages from Federal Reserve officials. Markets are accustomed to a tight consensus, and these differing viewpoints have contributed to volatile expectations," says Bankrate Financial Analyst Stephen Kates.

Along with Powell, only Fed Govs. Lisa Cook and Philip Jefferson are seen as wildcards in Wednesday's vote. Neither Cook nor Jefferson are known for publicly staking out strong positions on policy, and both reliably vote alongside Powell, potentially giving the Fed chair control of the key swing-voter bloc.

Powell has remained unusually quiet since the last FOMC meeting, offering no public comments about the economy or monetary policy. Perhaps, seeing the sharp divisions on the panel, Powell hopes to remain publicly neutral to maximize his ability to build consensus behind closed doors.

However, comments from Powell's closest allies, including Williams and San Francisco Fed President Mary Daly, who does not hold a vote on the FOMC, hint that the Fed chair is leaning in favor of a rate cut.

Financial markets now see a greater than 90% chance of a quarter-point rate cut Wednesday, according to CME FedWatch, but the vote may include significant dissents.

"I expect the vote will again highlight the wide variety of perspectives on the appropriate policy decision," says Realtor.com® Chief Economist Danielle Hale.

With a rate cut already largely priced in to mortgage rates, markets will be closely following Powell's commentary after the decision, as well as the quarterly summary of projections released with the vote tally, which will provide valuable clues as to the panel's future moves.

Analysts with PNC expect the Fed to deliver a "hawkish ease" marked by dissenting votes, with Powell giving voice to the concerns of those opposed to a cut as he explains the committee's decision.

"While Powell is likely to secure a majority in favor of a rate cut, the accompanying messaging will be notably cautious about further easing—underscoring a heightened commitment to data dependence before considering additional cuts," the PNC analysts wrote in a recent note.

Meanwhile, lingering fallout from the government shutdown continues to cast a fog over economic data, with key labor and inflation reports from October and November either delayed or canceled entirely.

"The lack of updated data will complicate the Fed’s ability to assess economic conditions, but the Fed will use the public data that is available and augment this with its own and private data reports," says Hale.

What a Fed rate cut means for mortgage rates

Average 30-year fixed mortgage rates dropped last week to 6.19%, their lowest level in more than a year, according to Freddie Mac.

However, mortgage rates have already largely priced in a December Fed cut, and aren't expected to fall further in the immediate aftermath of Wednesday's FOMC vote.

If anything, mortgage rates may tick up slightly immediately following the vote, if Powell's commentary and the summary of projections contain hawkish signals about future Fed policy.

That's because the Fed controls only the short-term rate used between commercial banks for overnight lending. Mortgage rates are set by the market, and tend to follow the rates on 10-year Treasury bonds, which move in response to investor expectations about future inflation and monetary policy.

The Realtor.com economic research team projects that mortgage rates will continue to average around 6.3% through 2026, suggesting little in the way of imminent rate relief for homebuyers.

However, the forecast projects buyers will see slight gains in affordability as incomes rise faster than home prices, and mortgage rates remain below the average level of 6.6% seen in 2025.