Deepening divide in Fed 'ever more apparent' as markets left 'with very little clarity

The deepening divide among FOMC participants is ever more apparent. The key takeaway from the dot plot is that the median member continues to see just one cut in each of the next two years, as they did in September. Yet, FOMC participants now have such a wide range of views on rates that markets are left with very little clarity.

Indeed, the split between the hawks and the doves is fairly balanced, with 7 of the 19 officials seeing no change in 2026, while 8 see two or more rate reductions. This does, at least, provide the Fed with optionality, which we think is a sensible approach given the recent dearth of official US data releases.

We see a pause at the next meeting in January, but err towards market pricing, and see two further cuts in 2026. Powell continues to appear unfazed by the impact of the tariffs on inflation, arguing that the 2% target was in sight once excluding the tariff effect.

His comments on the jobs market were also dovish, as he noted that demand for labour had “clearly softened”, reaffirming the Fed’s view that it does not believe that the cooling in the labour market is merely down to supply issues.

As mentioned by Powell, there will be a lot of data released between now and the next meeting due to the federal shutdown, which may help narrow divergences and forge consensus within the FOMC.

Markets will also have the small matter of the new Fed chair appointment to contend with in early-2026. As we’ve noted previously, however, we do not think that this will materially change the path of US rates next year.