The Fed is divided on interest rate cuts. That’s why it’s important

2:42 a.m. Federal Reserve Board Building in Washington, D.C., November 14, 2025. Elizabeth Franz/Reuters, FILE

Top Federal Reserve officials have shown rare public disagreement over a possible next interest rate cut this month.

Sentiment has shifted sharply in favor of a rate cut in recent days as some influential central bankers expressed openness to the move, futures markets showed. Nevertheless, disagreements are stored

Lower rates can reduce costs associated with everything from home mortgages to credit cards and car payments, making it cheaper to get a loan or refinance one.

The policy would also make it easier for businesses to borrow and potentially boost hiring, but it risks raising inflation at a time when many Americans are struggling to make ends meet.

“We haven’t seen this much uncertainty from the Fed in a long time,” John Sedunow, a finance professor at Villanova University’s School of Business, told ABC News.

Here’s what you need to know about why the Fed is split on its rate decision and what the policy might mean for you.

Why is the Fed divided on a possible interest rate cut?

Inflation has picked up in recent months, pushing prices up a full percentage point above the Fed’s 2% target. Meanwhile, hiring has slowed, creating the risk of an economic double whammy known as “stagflation.”

These conditions have left the Fed in a quandary, as the central bank must balance the dual mandate of keeping inflation under control and maximizing employment. To overcome the pressure on both goals, the Fed primarily has a single tool: interest rates.

“We have one tool,” Fed Chairman Jerome Powell said at a news conference in Washington, D.C., last month. “You can’t address both at the same time.”

If the Fed keeps interest rates steady as a hedge against tariff-induced inflation, it risks a deeper slowdown in the labor market. On the other hand, if the Fed cuts rates to stimulate the economy amid slowing hiring, it risks increasing spending and worsening inflation.

Policymakers at the Fed are divided on whether John Sedunow, a finance professor at Villanova University’s School of Business, told ABC News.

“The Federal Reserve is struggling with this idea: Do we push inflation more toward our goal, or do we do something about the labor market?” Sedunov said. “It’s hard to get through.”

Federal Reserve Chairman Jerome Powell answers questions from reporters during a news conference following a meeting of the Federal Open Market Committee at the Federal Reserve on October 29, 2025 in Washington, DC. Alex Wong/Getty Images

Why is momentum building in favor of interest rate cuts?

The odds have shifted significantly in favor of a rate cut at the Fed’s next meeting.

According to the CME FedWatch Tool, a gauge of market sentiment, the odds of a quarter-point interest rate cut are nearly 85%, up from 30% last week.

Perspectives seemed to be changing. a response to the vague jobs report and public statements by two of Powell’s allies on the rate-setting committee.

Friday’s September jobs report sent mixed signals about the labor market. Employers added far more workers than expected in September, though hiring fell short of a breakneck clip. Meanwhile, the unemployment rate rose to 4.4%, low by historical standards but the highest since October 2021.

New York Fed President John Williams, who is in frequent contact with Powell, expressed openness to a rate cut on Friday, telling reporters he still saw “room for further adjustment in the near term.”

Days later, San Francisco Fed President Mary Daly took a similar stance, telling reporters that she sees opportunities “for further adjustment in the near term.” Daley, who is not voting on interest rates this year, is widely seen as a Powell supporter.

“Both of them have come out in support of lowering rates,” Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and a former Federal Reserve official, told ABC News. “Both are quite centrist and close to the head [Пауелл].”

“A week ago everything was up in the air. They mostly moved through Williams and Daly,” Gagnon added.

What will the interest rate cut mean for you?

A quarter-point interest rate cut would reduce the Fed’s benchmark rate to between 3.5% and 3.75%.

This figure would represent a significant pullback from the peak in 2023. At the beginning of the pandemic, interest rates were 0%.

However, lower interest rates may offer some relief for mortgage and credit card borrowers. However, depositors may lose income due to lower interest rates on bank accounts.

Source: abcnews.go.com