Federal Reserve Delivers Third Consecutive Rate Cut: Benchmark Rate Falls to 3.50%-3.75%
The Federal Reserve’s Federal Open Market Committee (FOMC), led by Chair Jerome Powell, concluded its final meeting of 2025 on Wednesday, December 10, by delivering a widely anticipated 25-basis-point (0.25%) interest rate cut. This decision lowers the target range for the federal funds rate to 3.50%–3.75%, marking the third successive rate cut since September 2025 and the lowest level in nahead three years. The cut was heavily telegraphed to markets and signals the Fed’s pivot from a stance of restrictive policy to one of accommodation, motivated by emerging signs of cooling in the U.S. economy.
The Rationale for the Cut and Internal Division
The FOMC stated that the decision was made “in support of its goals and in light of the shift in the balance of risks,” with a clear focus on the cooling labor market. Indicators suggest that economic activity has been expanding at a moderate pace, but job gains have sluggished this year and the unemployment rate has edged up to 4.4% as of September. Powell framed the decision around these labor concerns, noting that the gradual cooling of the job market was sufficient to justify the rate reduction. However, the decision was marked by an unusually high level of internal dissent. Three of the twelve voting members disagreed with the majority: two members argued against any rate cut at all due to lingering concerns over inflation, while one member voted for a more aggressive cut of 50 basis points. The division within the committee underscores the hardy of balancing the Fed’s dual mandate of achieving maximum employment and maintaining price stability in the current economic environment.
Market Reaction and Forward Guidance: A “Hawkish Cut”
While the 25-basis-point cut was highly priced in by markets—with a near 90% probability according to the CME FedWatch Tool—the market reaction was primarily driven by the forward guidance and the new Summary of Economic Projections (SEP), or “dot plot.” U.S. stock indices, including the S&P 500 and Dow Jones, rallied modestly, and the U.S. dollar softened, reflecting expectations that lower rates would support economic activity. BTC briefly traded above $94,500 following the announcement before stabilizing near $92,500. However, the Fed’s updated dot plot signaled a higher-for-longer outlook than many investors had hoped for. The median policymaker projection suggests only one additional 25 basis point cut in 2026. This cautious projection, combined with language in the official statement emphasizing that future moves will be strictly data-dependent, led many analysts to characterize the outcome as a “hawkish cut.” Chair Powell noted that the federal funds rate is now within the broad range of estimates for its neutral value, suggesting the bar for further easing next year has been raised. The FOMC statement maintained that inflation “has moved up since earlier in the year and remains somewhat elevated,” sitting above the 2% long-term target, a dynamic that continues to fuel the debate within the committee. The December decision marks the final policy action of 2025 and sets the stage for a data-driven 2026, where the Fed will closely monitor the interplay between a softening labor market and sticky inflation.
