This month, the Federal Reserve announced a 25 basis point rate cut, with the federal funds rate now in the 3.50%-3.75% range. It seems like a routine move, but the story behind it is much more complex.

First, there are internal disagreements. During the meeting, three different voices emerged: the majority supported the 25 basis point cut; two officials opposed the cut due to inflation concerns; and one official felt the cut was not enough. Such a situation is rare since the 1970s and essentially reflects a direct conflict within the Fed between the goals of price stability and full employment — in other words, they are unsure which to prioritize.

Even more challenging are external pressures. The government has publicly pressured for rate cuts and has taken action on personnel appointments, raising concerns about the independence of the central bank. Additionally, the long government shutdown previously caused key economic data to be delayed or distorted, meaning policymakers are making judgments with limited information.

Looking ahead to 2026, what might happen? The Fed expects to cut rates only once next year, which is much more cautious than market expectations. Internal disagreements are unlikely to subside, especially around the new chair’s appointment, making policy discussions more complex. Many analysts believe the Fed will adopt a very slow easing pace — possibly only one rate cut before the new chair takes office in May.

What does this mean for the market? With such high uncertainty, the dollar’s performance in 2026 is expected to be quite volatile. It may be supported in the short term, but if the rate cut cycle becomes clearer in the second half of the year, the dollar could come under pressure. Overall, the Fed is currently balancing multiple pressures and conflicting goals, and every step will be taken very cautiously, with data remaining a key factor in decision-making.