US Federal Reserve Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee (FOMC), at the US Federal Reserve in Washington, DC, US, December 10, 2025. | Photo credit: REUTERS/Kevin Lamarque
Policymakers’ updated estimates – hampered by incomplete data on the economy following a six-week government shutdown – also showed that they expect inflation to slow to around 2.4% by the end of next year, even as economic growth accelerates to an above-trend 2.3% and the unemployment rate remains at a moderate 4.4%, a prospect that should allay concerns about possible stagflation lingering this year.
The broad disagreement over the right policies for such an environment also showed how challenging it can be to build consensus in a policymaking body that is about to undergo a leadership change, with Trump expected to name a successor to Fed Chairman Jerome Powell within the coming weeks.
THREE POLICY MAKERS DON’T RECOMMEND IT
At a press conference after the meeting, Powell said: “I note that after cutting our policy rate by 75 basis points since September and by 175 basis points since September of last year, the fed funds rate is now within a wide range of estimates of its neutral value, and we are well positioned to wait and see how the economy develops.”
However, Powell, who has repeatedly pointed out that he is in a strong position to wait for the next step, added that Fed officials have not yet made a decision on what to do with rates at their next policy meeting in late January.
Major U.S. stock indexes closed higher, while the dollar weakened against a basket of currencies and Treasury yields fell.
“The 25 basis point rate cut was widely expected and economic projections remain optimistic. I would view this as a semi-softening, cautious statement,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The markets welcome this decision.”
Other analysts pointed to the wide range of policymakers’ views on the interest rate outlook.
“It’s definitely an aggressive cut, not so much because we had two dissenters who wanted to show their support, but if you look at the dot plot, there were six of them who had not announced a rate cut at this meeting,” said Art Hogan, chief market strategist at B. Riley Wealth. The dot plot chart of Fed policymakers’ interest rate path projections showed six “dots” at 3.9%, with the policy rate ahead of Wednesday’s rate cut. The decision to lower the policy interest rate by a quarter of a percentage point to the bandwidth of 3.50%-3.75% caused three disagreements. Chicago Fed President Austan Goolsbee joined Kansas City Fed President Jeffrey Schmid in arguing that the policy rate should remain unchanged, and Fed Governor Stephen Miran again called for a larger cut of half a percentage point.
How monetary policy will evolve from here on out, heading into a US midterm election year that could hinge on the economy’s performance and with Trump pushing for sharper rate cuts, will now depend on data that still lags the impact of the 43-day federal government shutdown in October and November.
SOLID ECONOMIC OUTLOOK FOR 2026
The projections are optimistic in one sense: interest rates may remain higher than expected, but the economy will grow faster, even as inflation falls and unemployment also declines.
But the latest policy statement and projections were made without the benefit of recent jobs and inflation reports, relying instead on “available indicators,” which Fed officials have said include their own internal surveys, community contacts and private data. The latest official data on unemployment and inflation is from September and shows that the unemployment rate rose from 4.3% to 4.4%, while the Fed’s preferred inflation measure also rose slightly from 2.7% to 2.8%. The Fed has an inflation target of 2%, but the pace of price increases has been steadily rising from 2.3% in April, a fact that can be at least partly attributed to the passing on of rising import taxes to consumers and a driving force behind the central bank’s policy gap.
Jobs and inflation data for November will be released next week, followed later by a detailed report on economic growth for the third quarter.
“Available indicators suggest that economic activity has grown at a moderate pace,” the Fed policy statement said. “Job growth has slowed this year and the unemployment rate rose slightly in September,” the report said, dropping the reference to the unemployment rate as “low.”
The updated projections show a core of six policymakers favoring no rate cuts this year, and seven expecting no further cuts in 2026.
The median projection also assumes an additional quarter of a percentage point cut in 2027 as inflation continues to decline toward the central bank’s 2% target.
“Given the lack of consensus in the Committee on display today, along with the slow release of traditional economic data and the arrival of a new Fed chairman in early 2026, we think the Fed will likely remain on hold for a while, although continued weakness in some labor indicators could bring another 25 basis points into the mix at least before January,” said Rick Rieder, chief investment officer for global fixed income at BlackRock and one of five finalists Trump is considering to replace Powell.
Published on December 11, 2025
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