Fed's Collins Backs Rate Cut Amid Tight Decision, Signals Caution on Inflation

Federal Reserve official Michelle Bowman voted in favor of the December 2025 interest rate cut, marking a shift toward potential monetary loosening following a series of aggressive rate hikes. However, she stressed that the decision was not unanimous among policymakers and described her vote as a 'close call,' citing uncertainty around persistent inflation pressures and labor market strength. Bowman noted that core personal consumption expenditures (PCE) inflation remained above the Fed’s 2% target at 2.8% in November 2025, despite recent moderation. She highlighted that wage growth had maintained an annual pace of 3.4%, signaling continued upward pressure on prices. These figures contributed to her cautious stance, even as she acknowledged the risks of over-tightening amid slowing economic momentum. The decision to lower the federal funds rate by 25 basis points—the first such move since July 2023—was supported by seven out of the twelve voting members of the Federal Open Market Committee (FOMC). Bowman’s vote aligns with those who see inflation cooling enough to justify easing, though she underscored the importance of sustained progress before further cuts are considered. Markets reacted cautiously, with the 10-year Treasury yield rising slightly to 4.12% after the announcement. Financial futures pricing now reflect a 62% probability of another rate reduction by March 2026, down from 74% prior to the meeting. Investors remain sensitive to any indication of a dovish pivot, particularly given the Fed’s dual mandate of maximum employment and price stability.