On December 10, 2025, the Federal Reserve (Fed), under chair Jerome Powell, reduced its benchmark interest rate by 25 basis points, bringing the federal funds rate down to a range of 3.50 %–3.75 %, the lowest level in nearly three years.
This marks the third consecutive rate cut this year, following similar reductions in September and October. The move comes against a backdrop of persistent inflation and a softening job market, with Fed officials noting “downside risks to employment” alongside still‑elevated prices.
Inside the policy‑making committee, the decision was not unanimous. Out of 12 members, nine voted for the cut, while three preferred either no change or a deeper 50‑basis‑point cut, highlighting divisions over how aggressively to stimulate growth versus guard against inflation.
Importantly, Powell cautioned that future cuts are not guaranteed. He suggested that rates may now be near a neutral point, signaling a potential pause, or at least a slower pace, in further easing.
Beyond rates, the Fed also committed to resuming short-term Treasury bill purchases to bolster liquidity in US money markets, a step not seen since previous crises.
Markets responded quickly. Major US stock indices rallied on the news, the Dow Jones Industrial Average surged nearly 1.3%, while the S&P 500 and Nasdaq Composite also posted strong gains.
That said, global sentiment remained cautious. The Fed’s mixed signals, an uncertain labour‑market outlook, and persistent inflation left many unsure about what comes next, making 2026 a year of close watching for investors.
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