Fed cuts interest rates by quarter percentage point
The U.S. Federal Reserve on December 10, 2025, cut its benchmark interest rate by 25 basis points, lowering the federal funds target range to 3.50%–3.75%, the third rate reduction of the year, in hopes of supporting the economy amid mixed signals on inflation and the labor market. The decision was not unanimous, with multiple policymakers dissenting and the Fed signaled that it may pause further cuts until there is clearer economic data, especially on price pressures and employment. Financial markets reacted positively to the cut, with major stock indexes rising and bond yields and the dollar falling. Investors are hopeful about potential future easing, though the immediate guidance reflects caution.
Looking toward 2026, the Fed’s updated projections suggest only one additional rate cut next year, indicating a more muted outlook for monetary easing than some market participants had anticipated. Officials remain divided on the future path of interest rates, with a wide range of expectations expressed on the “dot plot” projections and uncertainty heightened by global inflation trends and a pending leadership change at the Fed. While inflation has eased from earlier peaks, it remains above the Fed’s 2% target, and longer-term borrowing costs and economic data gaps, in part due to delayed government releases, may temper how quickly the central bank adjusts rates further.
