Fed Cuts Interest Rates in December Meeting
The US Federal Reserve has reduced its benchmark interest rate by 25 basis points, setting the new federal funds target range at 3.50% to 3.75%. This marks the third rate cut of 2025, as the central bank aims to support an economy showing signs of slowing while keeping inflation in check.
Policymakers Divided on Magnitude of Cut
The decision followed the two-day meeting of the Federal Open Market Committee (FOMC), led by Chair Jerome Powell. Nine members supported the 25-bps cut, while one voted for a larger 50-bps reduction. Two members preferred holding rates steady, reflecting wider differences within the committee on how aggressively to respond to incoming data.
Reasons Behind the Policy Decision
The Fed said the cut was driven by shifts in economic risks, including a cooling labour market and gaps in recent economic indicators. Policymakers reiterated that future rate moves will depend on “the totality of incoming data,” signalling a cautious approach heading into 2026.
What the Fed Expects Next
Updated Fed projections suggest limited rate cuts ahead, with several officials expecting rates to stabilise unless the economy weakens further. The statement noted that while inflation has eased from its peak, it remains above long-term targets, requiring careful calibration of monetary policy.
Market Reaction and Impact
US markets moved higher following the announcement, as investors welcomed the prospect of lower borrowing costs. Economists say the rate cut could support business investment and consumer lending, though it may also reduce yields on savings instruments and government securities.
