WASHINGTON, Dec 11, 2025: The U.S. Federal Reserve on Wednesday approved its third interest rate cut of the year, lowering the benchmark federal funds rate by 25 basis points to a range of 3.50% to 3.75%, as policymakers signaled a slower pace of easing in 2026. The decision followed a divided vote among members of the Federal Open Market Committee (FOMC), with three dissenting officials underscoring the growing debate within the central bank over how aggressively to reduce borrowing costs.
Fed Chair Jerome Powell signals gradual shift as inflation and growth stabilize.Two policymakers voted to leave rates unchanged, while one favored a larger, half-point reduction. The split reflected differing assessments of inflation pressures and labor market dynamics across the committee. The rate reduction places the policy benchmark at its lowest level in nearly three years, marking a significant shift from the tightening cycle that ended in 2024. While headline inflation has eased from its peak, officials have emphasized that the path toward the 2% target remains gradual, with price gains in key service sectors proving resilient.
In its latest Summary of Economic Projections, the Fed indicated that most policymakers anticipate only one further rate cut in 2026, suggesting a more measured approach to monetary easing going forward. The updated outlook also showed modest downward revisions to growth expectations for next year, alongside a slight uptick in unemployment projections. The statement accompanying the decision noted that recent indicators point to “moderating economic activity,” with job growth slowing and consumer spending stabilizing after robust gains earlier in the year.
Benchmark rate hits lowest level in nearly three years
The Fed reaffirmed that its decisions will remain guided by data, particularly regarding inflation trends and labor market conditions. Financial markets responded calmly to the announcement. U.S. Treasury yields edged lower, while equity indexes held near session highs as investors digested the implications of a slower easing trajectory. Futures markets now price in a limited number of rate cuts in 2026, aligning with the Fed’s own projections. The dollar weakened modestly against major currencies following the release of the statement.
Fed Chair Jerome Powell, speaking at a press conference following the decision, said the Committee viewed the latest cut as consistent with its dual mandate of promoting maximum employment and stable prices. He reiterated that policymakers are monitoring incoming data closely and that future adjustments will depend on sustained progress toward the inflation target. Powell also acknowledged that while the economy continues to expand, the pace has cooled relative to the strong growth recorded earlier in the year.
Investors recalibrate expectations for further easing
The latest move caps a year of gradual policy easing after an extended period of elevated interest rates designed to curb post-pandemic inflationary pressures. The central bank’s benchmark rate had remained at restrictive levels for most of 2024, which contributed to tighter financial conditions and a slowdown in business investment. Analysts note that the Fed’s more cautious tone reflects both the achievements and remaining challenges of its policy path. Inflation has eased significantly from its 2022 highs, but underlying price pressures persist in sectors such as housing, healthcare, and services.
Meanwhile, wage growth has moderated but remains above pre-pandemic averages, complicating the timing of future rate adjustments. The FOMC will convene next in late January 2026, when policymakers are expected to reassess the balance of risks between inflation and growth. Until then, financial markets and global investors will closely watch U.S. economic data for signals of how firmly the central bank’s policy stance aligns with its stated goal of achieving a soft landing for the world’s largest economy. – By Content Syndication Services.