The Federal Reserve cut US interest rates by 25 basis points to a range of 3.5% to 3.75%, taking the federal funds rate to its lowest level since for three years.
- Divisions among policymakers appeared to grow at their December meeting
- Fed officials expect one rate cut in 2026
- Fed Chair Jerome Powell’s term is due to end in May 2026
The Federal Reserve (Fed) cut US interest rates by 25 basis points to a range of 3.5% to 3.75%, taking the federal funds rate to its lowest level since for three years. This was the Federal Open Market Committee’s (FOMC’s) third consecutive rate reduction, following cuts of 25 basis points in September and October .
“The head of the Federal Reserve is a stiff” (President Donald Trump
The FOMC’s December vote revealed growing divisions among policymakers, with nine members voting for a cut of one-quarter of a percentage point, one voting for a larger half-percentage point, and two voting for no change.
The longest-ever US government shutdown – which ended in November – resulted in a shortage of economic data releases. In particular, there was no consumer price inflation data for October following an increase to 3% in September; meanwhile, employment data for September, published in November, showed a slight increase in the unemployment rate, which rose from 4.3% to 4.4%. Elsewhere, there were signs of deterioration in consumer confidence. At present, Fed officials anticipate one rate cut in 2026; nevertheless, forthcoming releases of inflation and employment data could alter their expectations. Looking ahead, Fed Chair Jerome Powell commented: “There is no risk-free path for policy.”
Renewing his attacks on Chair Powell, US President Donald Trump criticised the size of the cut, commenting: “The head of the Federal Reserve is a stiff.” Chair Powell’s term is set to end in May 2026, and President Trump is expected to reveal his replacement in due course.
