The Federal Reserve has cut interest rates by 25 basis points, lowering the target range for the federal funds rate to 3.5–3.75 percent, in line with market expectations. The decision was announced on 10 December 2025 following the Federal Open Market Committee (FOMC) meeting.
In its statement, the Fed highlighted that economic activity continues to expand at a moderate pace, with job gains slowing and the unemployment rate edging up through September. Recent indicators remain consistent with these trends. Inflation has increased since earlier in the year and remains somewhat elevated, though the Fed aims to achieve long-term inflation of 2 percent.
The Committee emphasised ongoing uncertainty regarding the economic outlook and noted heightened downside risks to employment. In response, it lowered the federal funds rate by a quarter percentage point to support its goals of maximum employment and price stability.
Looking ahead, the Fed will carefully monitor incoming economic data, evolving forecasts, and the balance of risks to determine whether further adjustments to monetary policy are necessary. The Committee reaffirmed its strong commitment to returning inflation to its 2 percent target and supporting maximum employment.
In addition, the Fed stated that it will maintain ample reserve balances and initiate purchases of shorter-term Treasury securities as needed to ensure sufficient liquidity.
Voting on this decision, Chair Jerome H. Powell and most members supported the 25 basis point cut. Stephen I. Miran voted for a larger half-point cut, while Austan D. Goolsbee and Jeffrey R. Schmid preferred to keep rates unchanged.
Key projections from the Fed for the end of 2026 include:
– GDP growth forecast increased to 2.3 percent from 1.8 percent
– Unemployment rate held steady at 4.4 percent
– Personal Consumption Expenditures (PCE) inflation lowered to 2.4 percent from 2.6 percent
– Core PCE inflation slightly down to 2.5 percent from 2.6 percent
– Year-end federal funds target rate remains unchanged at 3.4 percent
Market expectations ahead of the decision indicated about a 90 percent probability of the rate cut. At the time of the announcement, the Dow Jones was up 0.34 percent, the S&P 500 was unchanged, and the Nasdaq was down 0.38 percent.
For forex traders, this cautious rate cut signals the Fed’s ongoing commitment to balancing inflation control with employment support amid economic uncertainties. Traders should watch incoming US economic data closely for clues about future Fed moves, especially around inflation trends, labour market conditions, and global developments.
Original Source: Greg Michalowski of investinglive.com
