The Federal Reserve is poised to lower its benchmark interest rate by 25 basis points this week, marking the third reduction in as many meetings as policymakers grapple with persistent inflation and weakening economic momentum. Markets are closely watching the central bank's tone for clues on future rate paths.
- Third consecutive rate cut expected in December 2025, reducing the federal funds rate to 4.00%-4.25%
- Core PCE inflation remains elevated at 3.1% as of October 2025, above the Fed’s 2% target
- Labor market shows signs of softening, with job growth slowing to 120,000 in November, down from 250,000 in September
- Consumer spending growth has moderated to 1.8% year-over-year in Q3, from 3.4% in Q1
- Market expectations now price in a higher probability of additional cuts in 2026
- Fed Chair Jerome Powell is expected to emphasize data dependency in the post-meeting press conference
The Federal Open Market Committee (FOMC) is expected to announce a 0.25 percentage point reduction in the federal funds rate range, bringing it to 4.00%-4.25%, during its December 2025 meeting. This would follow two prior cuts in September and November, signaling a shift from the aggressive tightening cycle that began in 2022. The move reflects growing concerns over slowing economic growth, although inflation remains above the Fed’s 2% target, with the core Personal Consumption Expenditures (PCE) index at 3.1% in October, down from 3.8% in early 2024.