Will the central bank cut rates for the third straight meeting?
With the final Federal Reserve rate decision of 2025 a little more than a week away, all signs point to a razor-thin margin on the Federal Open Market Committee (FOMC), with dissents to the majority decision a strong possibility.
Betting markets have swung back and forth over the last couple of weeks on the odds of a 25-basis-point rate cut. The current bet is that the Fed will slash rates for the third straight meeting, but the debate will be contentious.
The stage was set in the immediate aftermath of the FOMC’s 25 bps cut in October. Fed chair Jerome Powell, unsolicited, cautioned the gathered media that a December cut was not a foregone conclusion.
However, even with limited official data, the jobs market remained soft, with inflation holding mostly steady. These factors have led experts to go from predicting a December hold to a cut instead.
The reason for the turmoil is the battle between those two mandates. Gary Cohn (pictured top), former director of the National Economic Council under President Donald Trump during his first term, and current vice chairman of IBM, spoke about the challenges facing the central bank at the Mortgage Bankers Association event in Las Vegas.
“We've got a Federal Reserve that's stuck in a conundrum,” Cohn said. “They've got a dual mandate. One is full employment, which means basically getting unemployment as low as possible. And the second part of their mandate is something they call stable prices. Stable prices mean 2% inflation or less. We're not at stable prices right now.”
Choosing employment over inflation
The problem with mandates pulling in opposite directions is that the central bank can address only one at a time. Lowering rates can help stimulate an economy struggling with a softening jobs market, but it can often raise inflation. Raising rates can keep inflation in check, but could damage a market already struggling with affordability issues.
Cohn said that over the last two meetings, the Fed has chosen to focus on the employment side of the dual mandate.
“We're a little higher than 2% inflation,” Cohn said. “We're very close to 3% but on the other hand, we're seeing unemployment rates pick up more progressively than people would like to see. So the Fed trying to figure out how to fix both of these is making a decision to fix the unemployment picture more than they're picking fixing the inflation picture. I'm not disagreeing with that.”
He believes that the current state of the jobs market is a result of what happened to it during the COVID-19 pandemic.
“I think the unemployment picture is a natural evolution of where we've come from in COVID,” he said. “When we left COVID, we were in a very tight employment market. I'll speak with my industry hat on. We, as an industry, were hoarding talent. Everyone was afraid of where they’d get their next incremental worker. So you were incentivized to hold on to every incremental worker you had because you could not get them back.”
In the post-pandemic world, costs have increased as inflation has gone up. Cohn said many companies are accounting for this price increase by reducing labor costs.
“Now we're in a period of time where your input costs have gone up, especially on goods,” he said. “You can blame that on tariffs. Your inability to price finished goods down to the consumer, because the political pressure is high. So if you've got input goods price pressure, and you've got no ability to price your final goods. Something has to go in the middle. And what we've seen go is labor costs being pushed out.
“Now we know that wages are not going down. That means that you just have to employ fewer people. So we've seen companies go from what I would consider an abundance of extra labor to companies working at a stage where they're working at less labor than they probably need.”
Uncertainty in the Fed
This is the final meeting of the FOMC as it is currently constructed. Regional Fed governors from Boston, Chicago, St. Louis, and Kansas City will be replaced by those from Cleveland, Minneapolis, Dallas, and Philadelphia for 2026.
In addition, Stephen Miran’s term ends on January 31, though the Trump administration might slide him into Lisa Cook’s unfinished term if it can fire Cook.
Of course, one of the most significant Fed changes in 2026 will be the end of Powell’s term as chair on May 23. He has not indicated if he would step down from the Fed board or remain through the end of his term in January 2028.
Treasury secretary Scott Bessent signaled momentum in the search for the next Federal Reserve chair, saying there is "a very good chance that the president will make an announcement before Christmas."https://t.co/ialAFOXZNJ
— Mortgage Professional America Magazine (@MPAMagazineUS) November 27, 2025
Trump has indicated that he has a successor picked out for Powell, but has not announced it yet. Two Supreme Court cases, including a decision on the end of Humphrey’s Executor, which could allow Trump to fire Fed governors without cause, could also come down in the next two months.
What could be a chaotic few months for the central bank starts with the December 10 rate decision, which could come down to one or two votes.
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