At its December 2025 meeting, the Federal Reserve cut its benchmark rate by 0.25% to a range of 3.5%–3.75%, reflecting the difficult balance between easing inflation and supporting a softening labor market.
Inflation remains above the Fed’s 2% target, while the unemployment rate has risen to 4.4% from 4.1% earlier in the year. Chair Jerome Powell described the current environment as having “no risk-free path for policy.” The rate cut is intended to guard against a sharper slowdown in hiring, signaling a shift toward labor market concerns even as inflation progress has stalled. This marks the Fed’s third cut this year and a total reduction of 1.75% since last September, alongside upward revisions to GDP projections.
The decision was not unanimous, with a 9–3 vote reflecting notable disagreement within the Fed. While two officials dissented against the cut and one favored a larger reduction, projections show several officials preferred no change at all, underscoring the uncertainty around the policy path ahead.
