Twrc newsroom— In its final policy meeting of the year on December 9–10, 2025, the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) decided to cut its benchmark interest rate by 25 basis points, bringing the **federal funds target range to 3.50%–3.75% — marking the third consecutive rate reduction in 2025.
A Split Decision
While the quarter-point cut was broadly expected by markets, the internal deliberations revealed unusual divisions among policymakers:
The final vote on the rate change reflected significant dissent, with multiple officials favoring either no change or a larger reduction.
Minutes released this week show that many officials still believe additional rate cuts may be appropriate if inflation continues to cool, but timing and magnitude vary among members.
Economists note this level of disagreement underscores broader uncertainty within the Fed about how best to balance its dual mandate of price stability and maximum employment. The minutes also highlighted concerns that persistent inflation — still above the Fed’s 2% objective — could argue against overly aggressive easing.
Why the Cut?
In explaining the decision, the FOMC cited several key economic trends:
Slowing job growth and signs of rising unemployment indicated that labor market momentum has waned.
Although inflation has moderated compared to earlier peaks, it remains elevated, justifying a cautious approach.
Uncertainty surrounding recent economic data — partly due to disruptions from a government shutdown — made forward-looking policy choices more challenging.
The decision reflects the Fed’s effort to support economic activity without overstimulating inflationary pressures.
Balancing the Broader Market Environment
In addition to the rate decision, the Fed also intervened in short-term funding markets to ease year-end liquidity pressures, including increasing purchases of short-term government securities and encouraging use of the Standing Repo Facility, which set new usage records as institutions managed cash flows.
These liquidity operations help uphold financial stability and reinforce control over short-term interest rates amid seasonal market stress.
Looking Ahead to 2026
Fed officials signaled a more cautious stance on future rate adjustments, with updated projections showing only one additional rate cut expected in 2026 — far fewer than markets had priced in before the release of the minutes.
The next scheduled FOMC meeting is January 27–28, 2026, where the committee will reassess economic data and refine its policy outlook.
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What This Means for Consumers and Markets
Borrowing costs on loans and mortgages may continue to edge downward if the Fed implements further cuts next year.
Financial markets may remain volatile as investors digest the mixed signals from policymakers.
Inflation trends and job reports will be particularly important data points shaping future Fed decisions.
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Sources
Federal Reserve. Federal Open Market Committee statement. Washington, D.C.: Board of Governors of the Federal Reserve System.
https://www.federalreserve.gov/monetarypolicy/fomccurrent.htm
Federal Reserve. Minutes of the Federal Open Market Committee. Washington, D.C.: Board of Governors of the Federal Reserve System.
https://www.federalreserve.gov/monetarypolicy/fomcminutes.htm
Federal Reserve. Summary of Economic Projections. Washington, D.C.: Board of Governors of the Federal Reserve System.
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl.htm
Reuters. Fed policymakers weigh inflation progress and labor market risks. New York: Reuters.
https://www.reuters.com
Associated Press. Federal Reserve signals cautious path forward as economic uncertainty persists. New York: The Associated Press.
https://apnews.com
Bloomberg News. Federal Reserve officials divided on timing of future rate moves. New York: Bloomberg L.P.
https://www.bloomberg.com
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