Today at 2:00 PM EST, the Federal Reserve will announce whether it's cutting interest rates for the sixth time since September 2024. Markets are betting heavily on another quarter-point cut, but beneath the near-certainty lies an unusually divided committee and a murky economic picture that could reshape expectations for 2026.
What Is a Fed Rate Decision?
Before diving into today's expectations, let's cover the basics. The Federal Reserve, America's central bank, sets the "federal funds rate," which is the interest rate banks charge each other for overnight loans. While that might sound obscure, this rate ripples through the entire economy.
How the Fed Rate Affects You
When rates go down: Borrowing becomes cheaper. Credit card rates fall, mortgage rates typically decline, and auto loans get more affordable. Savings account yields also drop, making cash less attractive compared to stocks.
When Rates Go Up
The opposite happens: Borrowing costs rise, making loans more expensive. But savings accounts and CDs offer better yields. Higher rates can slow economic growth and help tame inflation, which is exactly why the Fed raised rates aggressively from 2022-2023.
The Fed has a "dual mandate" from Congress: keep inflation low (targeting 2% annually) and maintain maximum employment. These goals can conflict: lowering rates to boost jobs might fuel inflation, while raising rates to cool inflation might slow hiring. Today's decision reflects this balancing act.
What Wall Street Expects Today
Probability of a 0.25% rate cut today
According to CME FedWatch
Markets are pricing in a nearly 90% chance the Fed delivers its third consecutive quarter-point cut, bringing the target rate to 3.50%-3.75%. This would mark the sixth reduction since the Fed began its cutting cycle in September 2024.
But here's where it gets interesting: the Federal Open Market Committee (FOMC) is sharply divided. Some economists expect as many as three officials to vote against the cut, the most dissenting votes in six years.
The Hawks vs. Doves Divide:
Hawks (favor higher rates): Point to inflation still running at 2.8%, well above the Fed's 2% target. They argue cutting rates risks reigniting price pressures.
Doves (favor lower rates): Point to a cooling labor market, with job growth slowing and unemployment ticking up. They see rate cuts as necessary insurance against a potential recession.
New York Fed President John Williams, a close ally of Chair Powell, signaled support for a cut in late November, which many analysts interpreted as a green light from Fed leadership. But Cleveland Fed President Beth Hammack and others have publicly questioned whether another cut is warranted.
What to Watch at 2:00 PM
The rate decision itself is just one piece of the puzzle. Here's what savvy investors will be monitoring:
1. The "Dot Plot" Update: Fed officials release their individual projections for where rates will be in 2026 and beyond. In September, they expected four cuts in 2025. If that number shrinks, expect markets to react.
2. Powell's Press Conference (2:30 PM): Chair Powell's tone matters as much as the decision. Analysts at Goldman Sachs are watching for whether he says policy is "in a good place" (signaling a pause) or "modestly restrictive" (leaving the door open for more cuts).
3. The Statement Language: Any mention of "the extent and timing of additional adjustments" would signal the bar for future cuts is rising.
4. Dissenting Votes: If three or more officials vote against the cut, it signals deep disagreement about the path forward, which could mean more volatility ahead.
What This Means for 2026
Today's cut, if it happens, may be described as a "hawkish cut", lowering rates while signaling that more cuts aren't guaranteed. Economists currently expect the Fed to hold rates steady at its January meeting, with a 62% probability according to FactSet.
Looking further out, forecasts vary widely. Wilmington Trust expects three more cuts at the next three meetings, citing labor market weakness. Goldman Sachs expects a more cautious approach, with cuts dependent on incoming data. Some analysts predict only two cuts total in 2026.
The uncertainty stems from conflicting signals: inflation remains sticky at 2.8%, but layoffs are accelerating (up 54% year-over-year through November). Tariffs have complicated the picture further, with some Fed officials viewing their inflationary impact as temporary while others see lasting effects.
How Rate Cuts Affect Your Portfolio
Understanding the mechanics helps you stay calm amid the headlines:
Stocks: Rate cuts generally support equity prices by lowering borrowing costs for companies and making bonds less attractive by comparison. Growth stocks, especially tech, tend to benefit most since their future earnings become more valuable when discounted at lower rates.
Bonds: When rates fall, existing bonds with higher yields become more valuable, pushing prices up. This is why bond funds have rallied during the Fed's cutting cycle.
Cash & Money Markets: The $7.6 trillion sitting in money market funds will gradually earn less as rates decline. Some of that money will likely flow into stocks and bonds seeking better returns.
Your Mortgage: Mortgage rates don't move in lockstep with Fed rates (they're more tied to 10-year Treasury yields), but Fed cuts create a generally favorable environment for borrowers.
The Zen Take
Fed meetings generate enormous attention, but for long-term investors, they're mostly noise. The market has already priced in today's expected cut, which is why futures are flat this morning despite the "big decision" ahead.
What matters more than any single rate decision is your personal plan: Are you diversified? Are you investing consistently? Is your asset allocation aligned with your timeline?
The Fed will cut, hold, or hike. Markets will react, sometimes dramatically. But over decades, what compounds is patience, not prediction. Today's decision will be a footnote in your financial journey. Your habits will be the headline.