The Federal Reserve has made a notable decision, cutting interest rates by 25 basis points to a target range of 3.5% to 3.75% on December 10, 2025. This marked the third consecutive reduction in borrowing costs and signified the lowest rates the U.S. has seen since 2022.
However, this move was not without dissent; two Fed members voted against the cut, advocating for no change in rates. The unusual division was highlighted by Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee, who voiced concerns about maintaining the current rate structure.
In a contrasting stance, Fed Governor Stephen Miran, a recent appointee from the Trump administration, sought a more aggressive 50 basis point reduction, showcasing a split within the central bank that speaks to the ambiguity clouding the economic landscape.
Fed Chair Jerome Powell, addressing the decision during the Federal Open Market Committee meeting, acknowledged the balance of risks present. He cited upside inflation risks alongside falling employment rates as challenges in navigating monetary policy. “This is a challenging situation with no risk-free policy path,” Powell stated, emphasizing the uncertainty that surrounds the economic outlook.
In the wake of the announcement, Bitcoin displayed volatility, hovering around the $92,400 mark. Meanwhile, stocks in the U.S. exhibited modest gains, while the yield on the 10-year Treasury note dipped two basis points to 4.15%.
Alongside the rate cut, the Fed released updated economic projections. Core inflation figures are anticipated at 3% for 2025 and 2.5% for 2026, each adjusted down by 10 basis points. GDP growth forecasts have also been raised slightly, now projecting increases of 1.7% for 2025 and 2.3% for 2026, reflecting a moderate optimism.
Powell pointed to the resilience in consumer spending and business investment while acknowledging that inflation remains above the Fed’s preferred target of 2%. A significant concern arises from the recent government shutdown, which has resulted in data shortages affecting the Fed’s ability to make informed policy decisions.
Looking ahead, the Fed’s dot plot indicates that policymakers foresee only one additional rate cut in 2026, a stark contrast to the market’s previous expectations for two cuts. Current CME Group data reveals only 24% of traders anticipate a rate reduction at the upcoming FOMC meeting in January 2026, signaling a noteworthy decline in anticipated monetary easing.
The Fed has announced plans to begin purchasing shorter-term Treasury paper as necessary to ensure sufficient reserve levels, as recent data shows a decline in reserve balances.
As discussions concerning future leadership are underway, President Trump is reportedly contemplating a successor for Powell, whose term concludes in May 2026. Kevin Hassett, former director of the National Economic Council, is emerging as a top contender, with speculation suggesting he could push for a more aggressive monetary policy. This potential leadership change may influence future strategies and economic directions as central bank policy adapts to evolving conditions.
The implications of this rate cut and the mixed economic signals will reverberate through markets as investors adjust their expectations, keeping a keen eye on the Fed’s forthcoming moves amidst a landscape fraught with uncertainties.
