Federal Reserve Delivers Rate Cut Amid Dissent, Forecasts Single Reduction in 2026

The Federal Reserve announced a 25 basis point reduction in the federal funds rate, bringing the target range to 4.25%–4.50%, in its final policy meeting of 2025. The decision was supported by a majority of the Federal Open Market Committee (FOMC), but three members voted against the reduction, reflecting ongoing concerns about inflation persistence and labor market strength. The central bank’s updated summary of economic projections shows a median forecast of one rate cut in 2026, down from previous expectations of two cuts. This revised outlook underscores a shift toward greater caution, as the Fed continues to weigh the risks of inflation reaccelerating amid strong consumer spending and resilient employment data. Core inflation remains above the 2% target, with the personal consumption expenditures (PCE) index rising 2.8% year-over-year in November. Financial markets reacted with modest movement, with the S&P 500 gaining 0.4% and the 10-year Treasury yield dropping to 4.12%. The dollar weakened slightly against a basket of major currencies, while U.S. mortgage rates declined, signaling potential relief for homebuyers and refinancers. The Fed’s forward guidance indicated that the pace of future cuts will depend heavily on incoming data, particularly inflation trends and labor market dynamics. With inflation still elevated and wage growth firm, the central bank remains committed to maintaining policy restraint until there is greater confidence in sustainable disinflation.