Fed closes 2025 with cut

As expected, the Federal Reserve cut the benchmark fed funds rate by 0.25% to a target range of 3.5%-3.75%, its lowest level since early-November 2022:

The Fed’s third-consecutive cut occurred despite some uncertainty about the Fed’s intentions after its  late-October policy meeting, mostly stemming from Chair Jerome Powell’s comments that future cuts were not a “foregone conclusion.” As the December meeting approached, however, some board members issued more dovish statements, signaling the Fed was leaning toward another cut.

After trimming interest rates three times in late 2024, the Fed left them unchanged until September 2025 because of concerns about potential tariff-driven inflation. However, a string of soft employment data convinced the committee that a weakening labor market posed a bigger risk to the economy, and that lower rates were called for.

While data has continued to suggest the jobs market has slowed, there is no indication it has fallen off a cliff. Similarly, inflation has remained stubbornly above the Fed’s 2% target, but it hasn’t shown signs of turning sharply higher.

However, there were multiple dissents to the decision to cut rates by 0.25%, with one member voting for a 0.5% cut and others favoring no cut. The Fed also suggested that, moving forward, it may lower rates less aggressively.