Investors are pretty much convinced that the Federal Reserve will lower interest rates on Wednesday, but they have been increasingly expecting a “hawkish cut.” That is, they expect the Fed to signal caution about cutting rates further in 2026, even as they deliver one more in 2025. Markets are pricing in an 89% probability of a 25-basis-point cut, according to LSEG data. As President Trump plans to start his final round of interviews in the coming days with candidates to be the next Fed chair, Kevin Hassett—the favorite to win—said Tuesday that he would rely on his own judgment and not bow to political pressure to decide whether to cut rates. Elsewhere, the Bank of Canada is widely expected to hold its policy interest rate on Wednesday, and most economists believe this will mark the start of a prolonged pause after the bank delivered nine cuts over the past 17 months.

The Federal Reserve is expected to lower interest rates by 0.25 percentage point on Wednesday. That would be the third straight meeting at which officials have cut rates, amid debate over whether inflation or a weak labor market is a bigger economic threat. Investors are pondering the outlook for cuts in 2026. Here are some issues to watch for, coming out of the meeting and Chair Jerome Powell’s press conference.

• Investors Expect a ‘Hawkish Cut’
• The Fed Vote You Won't Hear About
• Global Markets Mixed as All Eyes Turn to Fed Rate Decision

National Economic Council director Kevin Hassett says he would rely on his own judgment and not bow to political pressure to decide whether to cut interest rates if he becomes the next chairman of the Federal Reserve.

Hassett said, however, that there is “plenty of room” to cut rates in the months ahead, aligning himself with President Trump’s repeated calls for lower borrowing costs. “If the data suggests that we could do it, then—like right now—I think there’s plenty of room to do it,” he said during a Wall Street Journal CEO Council event on Tuesday. Pressed over whether that meant the Fed could cut rates by more than the quarter-point that is currently expected on Wednesday, Hassett said, “Correct.”

• Trump Plans Final Interviews With Fed Chair Candidates in Coming Days

• China Is Too Big to Rely on Exports for Growth, IMF Chief Warns

8:30 a.m.: Employment Cost Index
9:45 a.m.: Bank of Canada interest-rate announcement
10 a.m.: Online Help Wanted Index
2 p.m.: Federal Reserve economic projections
2 p.m.: U.S. interest-rate decision
2:30 p.m.: Fed Chair Jerome Powell press conference

8:30 a.m.: U.S. International Trade in Goods & Services
8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims
10 a.m.: State Employment and Unemployment
10 a.m.: U.S. Housing Vacancies
10 a.m.: Monthly Wholesale Trade

​Nomura Capital Management's base case up until mid-November had been that the Federal Reserve would not make a rate adjustment in December, but the most recent data points to a slowing pace of inflation and more, or at least persistent, softness on the labor front, says CIO Matthew Pallai in a note. New economic projections should reflect a somewhat tempered pace of inflation in the next few quarters, and this opens the door for another rate cut, he says. "Despite this change in our outlook for near-term Fed decisions, it has become clear that the current committee is more divided than it has been in a very long time with respect to how to handle the path of monetary policy," Pallai says. — Emese Bartha

Goldman Sachs economists expect the Federal Reserve to cut interest rates by 25 basis points on Wednesday, Chief Financial Officer Denis Coleman says at the Goldman Sachs Financial Services Conference. The bank's economists further expect a pause in the beginning of 2026 followed by two more rate cuts. "I would characterize the U.S. economy in particular as resilient and conducive to business," Coleman says. — Elias Schisgall

The U.S. Federal Reserve is expected to continue cutting interest rates, creating a conducive environment for risk assets to rally, Neuberger CIO Shannon Saccocia says in a note. The combination of Fed rate cuts and AI-linked productivity gains are expected to boost risk assets, equities in particular, she says. "Historically stocks perform strongly when the economy is not in recession and the Fed is easing." Periodic bouts of market volatility are also expected, she says. Investors, nonetheless, need to exercise caution given the uncertainty around the effects of the U.S. government shutdown, Saccocia says. — Miriam Mukuru

• Big-ticket mergers and acquisitions, or those valued at $10 billion or more, hit a record dollar amount this year, according to Dealogic. Much of the price tag on those deals gets paid for with debt.
• The U.S. is—still —a low-tax country: In 2024, the U.S. collected 25.6% of gross domestic product in revenue, holding flat from 2023, a new tally from the OECD shows. That includes all taxes collected by federal, state and local governments combined.
• Silver prices rallied to new highs on Tuesday, powered by confidence that the Federal Reserve will cut interest rates this week and fears of a global supply squeeze.
• The oil market is grappling with whether sanctioned Russian and Iranian cargoes should still be counted as supply. This may explain why oil prices have been slow to react to a huge glut that is building on the ocean.

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.