Fed Ends 2025 With Third Consecutive Rate Cut, Sees Fewer Reductions Ahead

The US Federal Reserve has concluded calendar year 2025 with a third consecutive rate cut, as the majority of members in the Jerome Powell-led panel voted in favour of lowering the benchmark lending rates by 25 basis points.

The move, in line with expectations, has reduced the rates from 3.75–4% to 3.5–3.75%. The decision, however, was not unanimous as nine members voted in favour of reducing the rates by a quarter point, whereas three dissented.

Among those voting against this action was Fed Governor Stephen Miran, who preferred to lower the target range for the federal funds rate by basis points. On the other hand, Austan Goolsbee and Jeffrey Schmid—also members of the Federal Open Market Committee (FOMC)—were in favour of maintaining status quo.

Ahead of the official announcement, the market was pricing in an 89.4% probability of 25-bps rate cut, according to CME FedWatch.

Fed's closely watched "dot plot" signalled a median expectation of only quarter point rate cut in 2026, followed by another in 2027, when the benchmark lending rate would come down to 3%. This forecast is the same as what was projected in September.

Individually, seven officials pencilled in no rate cuts for 2026, four officials see at least one rate cut, and four others expect three quarter point cuts next year.

The broader details on whether Fed is making a hawkish tilt was expected to emerge in the press conference to be addressed by Fed Chair Jerome Powell, shortly after the announcement of the rate cut decision.

The FOMC, in its statement issued following the conclusion of its two-day meeting, said the "uncertainty about the economic outlook remains elevated".

"Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September," it stated. Even as the FOMC flagged the moderation in economic activity, it underlined that inflation has moved up since earlier in the year and "remains somewhat elevated".