The Fed is likely to cut rates for a third time this year. What happens next year is less certain.

After consternation about whether the Federal Reserve will cut interest rates for a third time this year, the consensus is that the central bank will likely go ahead with a 25-basis point cut on Wednesday — even if it’s a split decision.

“This is a hard call,” said Alan Blinder, former vice chair of the Fed and economics professor at Princeton. “[But] I do think it’s more likely they cut than not… It wouldn’t surprise me if this is a ‘hawkish cut.'”

That is to say, a rate cut this week could come with a caution to markets not to expect the Fed to keep cutting meeting after meeting. Blinder said he also thinks there could be dissenters on both sides of the interest rate decision, given existing divisions within the committee.

Luke Tilley, chief economist for Wilmington Trust, who also thinks the Fed will cut rates Wednesday, predicted Fed Chair Jerome Powell will frame a rate cut the same way he did at the last press conference: by emphasizing differing opinions over further rate cuts and cautioning against assuming that the central bank will continue to cut.

Ahead of this week’s meeting, a handful of Fed officials have made the case that there is not a strong need to cut rates given concerns about inflation, which remains a full percentage point above the Fed’s 2% target. Those include Boston Fed president Susan Collins and Kansas City Fed president Jeff Schmid.

Chicago Fed president Austan Goolsbee has also expressed hesitation about “frontloading” too many rate cuts, citing inflation. On the flipside, New York Fed president John Williams, vice chair of the Federal Open Market Committee and a member of Fed leadership, strongly signaled a few weeks ago that he could support a rate cut.

“I still see room for a further adjustment in the near term to the target range for the federal funds rate, to move the stance of policy closer to the range of neutral,” Williams said on Nov. 21.

To some Fed observers, that comment alone moved the odds.

“The vice chair, John Williams, usually doesn’t strongly signal that much in a speech unless he has the Fed chair’s endorsement,” said Loretta Mester, former president of the Cleveland Federal Reserve. “So my view is they’re going to go ahead with another 25-basis point cut in December.”

While Mester says she thinks the Fed is not necessarily wrong to cut rates, she would not support it at this point and would want to see how the economy is faring at the beginning of next year, then course-correct if needed.

“I don’t really see a compelling case to cut this time, other than the fact that it was in the interest rate projections from September,” she said. “I think it’s more expeditious than a good economic argument.”

Blinder cautioned that if the central bank cuts rates again this week, policymakers risk making it harder to pull inflation down.

Blinder says, “we may be” at risk of unleashing persistent inflation if the Fed continues to cut rates.

“The question is whether we’re there right now,” he said. “I think we may be.”

Read more: What the Fed rate cut means for your money

What the available data says

The release of inflation data continues to be delayed due to the government shutdown that ran for all of October and into November. The latest reading of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, was released with a two-month lag. For September, on a “core” basis excluding food and energy prices, inflation increased 2.8% in September, down a tenth of a percentage point from August. Fed officials expect inflation to end the year at 3.1%.

A stronger-than-expected — albeit stale — September jobs report showed payroll growth bounced back in September with 119,000 jobs added, compared with a loss of 4,000 for the month of August. That contributed to a volatile trend where job creation turned negative in June, increased in July, decreased again in August, and rebounded again in September.

A more recent anecdotal reading on the job market from the Fed’s Beige Book showed that in the first two weeks of November, layoffs ticked up, employers were implementing hiring freezes, and adjusting workers’ hours. A few firms noted that artificial intelligence replaced entry-level positions or made existing workers productive enough to curb new hiring.

Fed officials will receive more real-time data releases the week after their meeting.

Looking ahead to 2026

Fed observers will be watching this week to see what officials signal about the future path of policy. Powell will hold his usual post-meeting press conference, and policymakers will unveil their latest quarterly projections for interest rates, which will include the outlook for 2026.

“I’m hoping that he’ll give sort of a narrative about really how they’re thinking about the economy,” Mester said.

She said she would take a cautious approach to further rate cuts because she sees inflation being driven not just by tariffs — which she considers one-time price increases — but also in the price of services.

While the Fed is trying to cushion against deterioration in the job market, Mester said she believes much of the softening is due to longer-term changes the Fed can’t control, such as shifting immigration policy that’s resulting in a smaller pool of workers. At the same time, she acknowledged weakening due to uncertainty over tariffs and firms wanting to protect their profit margins from tariffs, as well as the cost of labor.

“So you kind of have this sort of almost stasis in the labor market, and I’m not sure cutting interest rates does anything really to help that,” she said.

Wilmington Trust’s Tilley, however, predicted three more cuts at the next three Fed policy meetings because he thinks the job market is weakening and expects it to weaken further.

Tilley estimated that 154,000 government workers who took buyouts, dropping off payrolls in October, could boost the unemployment rate for November by nearly a tenth of a percentage point to 4.5%. He also noted that outside of healthcare jobs, private-sector job growth has been negative, according to BLS data.

“There are the federal employees, and you’ve also got new entrants to the labor force who are having a hard time finding jobs,” Tilley said. “So, it all comes together to reflect a very weak labor market.”

Aditya Bhave, senior US economist at Bank of America, projected two more cuts next June and July, not because the economy will need it, but because of a new chair of the Fed. That would leave rates in a range of 3.0 to 3.25%.

“Our forecast of additional cuts next year is due to the change in leadership, not our read on the economy,” said Bhave. “In fact, by cutting rates next week, we think the Fed would increase the risk of pushing policy into accommodative territory, just as fiscal stimulus kicks in.”

Amir Bagherpour, global managing director for Accenture, is predicting the Fed will cut rates one or two more times next year after cutting this week. That outlook assumes inflation as measured by core PCE will range from 2.5%-2.7% next year; GDP will be in the range of 1.5-1.8%; the unemployment rate will end next year in the range of 4.4-4.6%; and monthly jobs growth will average 75,000-125,000.

Fed officials will release new projections for inflation, GDP, and unemployment on Wednesday.

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

Click here for the latest economic news and indicators to help inform your investing decisions

Read the latest financial and business news from Yahoo Finance