WASHINGTON — The Federal Reserve lowered its benchmark federal funds rate by a quarter percentage point to a target range of 3.5% to 3.75% in a 9-3 vote at its December policy meeting in Washington, marking its third Fed rate cut of 2025. Wednesday, Dec. 10, 2025.
Chair Jerome Powell said the move is meant to guard against a softening job market while keeping pressure on still-elevated inflation, casting it as a limited adjustment rather than the start of a rapid easing cycle.
Markets parse a “hawkish” Fed rate cut.
Powell repeatedly stressed that policymakers are “patient” and now “well positioned” to wait for clearer data before moving again, even as he signaled that a return to rate hikes is unlikely barring a major surprise. He highlighted that most officials foresee only one additional 25-basis-point move in 2026, according to the so-called dot plot of individual projections released with the December Summary of Economic Projections.
In its official FOMC statement, the central bank kept its description of inflation risks “balanced” but acknowledged that downside risks to employment have risen, a shift that helped justify Wednesday’s Fed rate cut even as price pressures remain above the 2% target.
Projections now show inflation easing to about 2.4% in 2026, GDP growth ticking up to roughly 2.3%, and unemployment steady near 4.4%, a combination Fed officials say is consistent with a soft landing rather than an imminent recession.
For markets, the Fed rate cut delivered a familiar sugar high: stocks jumped, Treasury yields slipped, and the dollar weakened modestly as traders bet that easier policy would support risk assets into year-end. A Reuters recap of the decision noted that the split vote and sparse 2026 easing left some investors skeptical that the Fed will deliver the deeper cuts currently implied by futures markets.
Dissents underline the limits of this Fed rate cut.
Wednesday’s Fed rate cut also came with the largest internal split in years: two officials favored leaving rates unchanged. At the same time, one pushed for a larger half-point reduction, producing a rare 9-3 vote at the normally consensus-driven central bank. That division mirrors the broader debate on Wall Street over whether the Fed is doing too little to cushion the labor market or too much at a time when core inflation is still running above target.
From hiking cycle to Fed rate cut: how policy got here.
To understand why this Fed rate cut feels pivotal, investors are looking back at the arc of the Fed’s policy over the last three years. The tightening cycle began with the March 2022 liftoff, when the Fed raised rates from near zero and signaled an aggressive campaign to tame post-pandemic inflation.
By June 2024, officials were holding the policy rate at a 22-year high in the 5.25% to 5.5% range and, as detailed in a June 2024 meeting report, the dot plot pointed to just one cut that year, underscoring their reluctance to ease prematurely.
Later that year, the Fed delivered a modest December 2024 rate cut while signaling only two reductions in 2025, a pattern of cautious easing that has carried into this year’s trio of quarter-point moves. In September and October 2025, those earlier Fed rate cut decisions were framed as insurance against mounting labor-market risks rather than a rush to cheaper money, a framing Powell largely repeated this week.
What comes next after a cautious Fed rate cut
For households and businesses, the immediate effect of the Fed rate cut will be modest: some credit-card, auto, and adjustable-rate mortgage borrowers will see rates drift lower, but the central bank’s own projections suggest policy will remain restrictive well into 2026. Analysts say the path from here will hinge on incoming data, with a string of cooling inflation prints likely needed to turn this one-off Fed rate cut into the start of a more traditional easing cycle.
For now, Powell is signaling a pause, the dot plot shows only one 2026 move, and the committee is split over whether even this week’s step was necessary — a combination that may keep markets volatile long after the headlines about a Fed rate cut fade.
