Fed Cuts Rates by 25 Basis Points as Growth Slows
The Federal Reserve cut interest rates by a quarter point on December 10, 2025, pointing to slower job growth, a cooling labor market, and renewed inflation pressures. Officials said the economy is still growing at a “moderate pace” but warned that uncertainty has increased and risks to employment have risen in recent months.
The decision lowers the federal funds rate to a range of 3.50% to 3.75%, signaling a shift toward easier policy after a year marked by weak hiring and uneven progress on inflation. While inflation has moved higher again this year, policymakers stressed that supporting the labor market remains a key focus as job gains slow and unemployment inches up.
The Fed said future rate moves will depend on incoming economic data, changes in the outlook, and the balance of risks. Officials reaffirmed their goal of bringing inflation back to 2% over time while maintaining a stable job market.
Additional Measures Announced
Alongside the rate cut, the Fed approved several steps to support market liquidity:
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The interest rate paid on reserve balances will be lowered to 3.65% starting December 11.
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Overnight repo operations will be set at 3.75%, while reverse repo operations will run at 3.50%, with a $160 billion limit per counterparty.
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The Fed will begin buying short-term Treasury bills and may purchase securities with maturities of up to three years if needed to keep reserves at adequate levels.
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Principal payments from Treasury and agency securities will continue to be reinvested into Treasury bills.
These actions are aimed at reinforcing the new rate target and keeping financial conditions stable.
Divisions Within the Fed
The decision revealed deeper disagreement among policymakers. Three officials dissented from the majority:
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Stephen Miran supported a larger 50-basis-point rate cut.
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Austan Goolsbee and Jeffrey Schmid favored leaving rates unchanged.
Despite the split, most policymakers, including Chair Jerome Powell and Vice Chair John Williams, backed the 25-basis-point cut as a balanced response to current economic risks.
What Comes Next
While inflation remains above target, the Fed’s latest statement places greater emphasis on a weakening labor market and growing uncertainty. Policymakers signaled they are prepared to adjust policy again if conditions worsen.
Markets will now focus on upcoming jobs reports, inflation data, and signs of stress in financial or global markets as the Fed tries to support slowing growth without allowing inflation to rise again.
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