Fed Maintains Inflation Target Amid Third Consecutive Rate Cut in 2025

The Federal Open Market Committee (FOMC) concluded its December 2025 meeting with a unanimous decision to reduce the federal funds rate by 25 basis points, marking the third consecutive cut this year. The move brings the benchmark rate to a range of 4.25%–4.50%, reflecting the Fed’s ongoing effort to balance inflation control with economic growth. Despite recent improvements in core inflation, officials emphasized that the 2% target remains the central focus of monetary policy. In its post-meeting statement, the Fed noted that inflation has moderated to 2.8% on a year-over-year basis in November 2025, down from 3.2% in August. Core inflation, which excludes food and energy, declined to 2.9%—a significant improvement from its peak of 4.1% in early 2024. These figures suggest progress, but officials cautioned that inflation pressures remain persistent in services and housing sectors. The FOMC projected a single additional rate cut in 2026, indicating a pause in easing until the economy demonstrates sustained adherence to the 2% inflation benchmark. The committee’s summary of economic projections (SEP) showed a median forecast for the federal funds rate to reach 3.5% by year-end 2026. This projection reflects a shift toward a more neutral stance, with officials expecting the economy to grow at a moderate 1.9% pace in 2026. Financial markets reacted cautiously, with the 10-year Treasury yield falling to 4.12% and the S&P 500 gaining 0.7% on the day. The move signals that investors are pricing in a gradual path to lower rates, while maintaining expectations for persistent inflation monitoring. Sector performance varied, with financials seeing modest gains and tech stocks holding steady, supported by lower borrowing costs.