Fed Cuts Rates at December Meeting
The Federal Reserve (Fed) concluded its final meeting of 2025 on December 10th amid continued uncertainty around inflation and employment. Below is a summary of the key takeaways from this meeting and what they may mean moving forward.
1. A third consecutive rate cut amid a divided vote
The Fed lowered its benchmark interest rate by 0.25%, setting the new target range at 3.50%-3.75%. This marks the third straight quarter-point cut since September. The decision was made despite limited access to official economic data following the recent government shutdown. The Fed cited an ongoing need to balance risks to both employment and inflation in its decision.
For the first time since 2019, three members of the Federal Open Market Committee (FOMC) dissented from the decision. Stephen Miran supported a larger, half-point cut, and Austan Goolsbee and Jeffrey Schmid preferred to hold rates steady. This growing division among policymakers highlights differing views on how to weigh inflation risks versus labor market challenges.
2. Labor market cooling, data delays persist
Although official jobs data releases for October and November were delayed due to the government shutdown, the Fed used private-sector indicators to assess labor conditions. These suggested continued softening, with declining job openings and slower hiring. The most recent government data, from September, showed the unemployment rate at 4.4%, the highest since 2021. The Fed projects unemployment will end the year around 4.5% before improving in later years.
3. Inflation remains above target
The Fed continues to monitor inflation closely, even as recent data releases have been delayed due to the government shutdown. Inflation persists above the Fed's 2% long-term target, as indicated in its post-meeting statement.
According to the most recent official data from September, the Personal Consumption Expenditures (PCE) price index rose 2.8% year-over-year. Core PCE (which excludes food and energy) also rose 2.8% year-over-year in September. Tariff-related pressures are contributing to higher prices for goods, while inflation in services has eased somewhat. The Fed noted that the effects of tariffs are expected to be temporary but emphasized its responsibility to prevent lasting inflation.
4. Economic projections show cautious optimism
Despite uncertainty about how inflation and employment trends will evolve in the coming months, the Fed’s updated projections show a modestly stronger economy in the years ahead. Real gross domestic product (GDP) is forecast to grow 2.3% in 2026, up from 1.7% in 2025. Inflation is projected to gradually decline, reaching 2.4% in 2026 and 2% by 2028. The median answer on the Fed's dot plot pointed to one more rate cut in 2026, though individual projections varied widely.
5. Future decisions will be data-dependent
Fed Chairman Jerome Powell emphasized that no future rate path is guaranteed. He stated that policy is now in a “neutral” range, meaning it is neither stimulating nor slowing the economy, and that future moves will depend on evolving data. In particular, the Fed will closely monitor developments in inflation, employment, and financial market conditions in the months ahead.
6. What this could mean for your finances
Here are a few things to keep in mind:
- Borrowing costs may ease - Mortgage rates may already reflect rate cuts, so any further declines could be modest or take time to materialize. Rates on credit cards and personal loans may respond more directly to changes in Fed policy rates.
- Savings yields may dip - Banks often respond to rate cuts by lowering interest paid on savings accounts and CDs.
- Market volatility may persist - With important economic data expected soon and diverging views within the Fed, markets may remain sensitive to inflation and employment reports in the weeks ahead.
- Long-term planning remains key - Staying focused on your overall goals may help you stay grounded as financial conditions continue to evolve.