The Federal Reserve's December quarter-point rate cut has now been locked in, as widely expected. However, the vote showed the effects of growing division within the central bank, one that's likely to increase even more in 2026 and the Fed made clear that additional cuts in the immediate future are unlikely.
The decision of the Federal Open Market Committee to reduce the benchmark federal funds rate by 25 basis points to 3.5% to 3.75% came on a nine-to-three vote. Chicago Fed President Austan Goolsbee and Kansas City President Jeffrey Schmid voted against the measure. Fed Board Governor Stephen Miran wanted a 50-basis-point cut. The last time there were three votes against an interest rate decision was in 2019.
“The FOMC voted to cut the federal funds rate target by another 25 basis points today, but the three dissents highlighted just how divided the Committee is with respect to future rate cuts,” said Mortgage Bankers Association Chief Economist Mike Fratantoni, in emailed remarks.
“As in the prior meeting, there were dissents on both sides of the decision.”
The economic projections of Fed Board members showed a median expectation of one quarter-point rate cut in 2026 and a second in 2027 and then none in 2028.
“The projections published from this meeting show the Committee does not see a clear path, with members indicating slightly faster growth, but similarly elevated inflation and a fed funds rate path that matches the September projections,” Fratantoni further said.
Decisions were difficult for multiple reasons. The federal government shutdown has affected normal reporting of economic data, giving the Fed incomplete information on which to base decisions. The combination of higher inflation, supported by tariffs and a weakening labor market, left the institution trapped between its sometimes conflicting dual mandates of stable prices and maximum employment. The two tend to require opposite monetary strategies to address them.
"While the Fed's rate reductions are a positive signal for commercial real estate markets, markets should recognize that continued deficit spending across developed economies, including the U.S., creates a natural floor on how low rates can realistically go,” noted Ronald Dickerman, founder and president of Madison International Realty, in an emailed statement.
“Real estate owners are in need of liquidity solutions while growth remains fleeting and highly differentiated across sectors and primary market activity. These rate adjustments provide some relief, but investors will need sophisticated strategies to generate alpha amid a fragile market landscape."
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