Federal Open Market Committee Cuts Rates for Third Time Amid Data Delays

The Federal Open Market Committee (FOMC) on Wednesday, December 10, 2025, concluded its meeting by implementing a 25 basis point reduction in the target range for the federal funds rate, establishing the new benchmark between 3.50% and 3.75%. This decision marks the third consecutive rate cut this year, following similar actions in September and October that had previously lowered the rate to the 3.75%–4.00% range. The move passed by a nine-to-three vote, with the official statement citing support for its goals and a shift in the balance of risks as justification.

This latest reduction brings the federal funds rate to its lowest level since 2022, reversing some of the aggressive tightening cycle initiated in March 2022 to counter rising inflation. The committee's decision-making process was notably complicated by a significant disruption in the release of official economic indicators, caused by a 42-day federal government shutdown spanning October and November. This operational hiatus prevented the timely publication of comprehensive data, including key reports from the Bureau of Labor Statistics for October, forcing policymakers to base their assessment on incomplete information.

Despite the data void, the FOMC pointed to slowing job gains and an increased unemployment rate through September as primary factors supporting the easing of monetary policy. Policymakers continue to navigate the dual mandate, seeking to bolster the labor market while managing inflation that remains above the Federal Reserve's long-term objective of 2%. Market sentiment had largely anticipated this outcome, with the CME FedWatch tool reflecting an approximately 89.9% probability assigned to a 25 basis point reduction immediately prior to the announcement.

The internal division within the committee, evidenced by the three dissenting votes—one favoring a larger 50 basis point cut and two advocating for maintaining the current rate—underscores ongoing strategic tension. This divergence is anticipated to be visible in the updated 'dot plot' projections for 2026, which will offer further clarity on the committee's future policy trajectory. This policy phase occurs as Chairman Jerome Powell's tenure nears its conclusion in May 2026, with the selection process for his successor underway.

The implications of this third cut are broad, potentially lowering the cost of capital for both households and businesses, thereby encouraging investment and consumption. However, the market remains attentive to the risk that sustained easing could potentially reaccelerate inflationary pressures, a concern reflected in the movement of the 10-year Treasury yield. The FOMC also confirmed that reserve balances have reached ample levels, and the committee will conduct necessary purchases of shorter-term Treasury securities to maintain this supply. Looking forward, projections for the end of 2026 show significant differences among officials, with four members anticipating rates holding steady, four projecting a further 25 basis point cut, and four anticipating a deeper 50 basis point reduction, alongside projections for PCE inflation at 2.4% and unemployment at 4.4%.