FX.co ★ Fed Lowers Rates for 3rd Time

In December 2025, the Federal Reserve reduced the federal funds rate by 25 basis points, bringing it down to a range of 3.5%–3.75%, following similar reductions in September and October, aligning with market expectations. This adjustment marks the lowest borrowing costs since 2022. The decision saw divergence within the committee, with three members opposed to the cut, a scenario last witnessed in September 2019. Stephen Miran supported a more substantial reduction of 50 basis points, whereas Austan Goolsbee and Jeffrey Schmid advocated for maintaining the current rates. The policymakers have kept their federal funds rate projections consistent with those from September, indicating the possibility of only one 25 basis point cut in 2026. Regarding GDP, the Fed has revised its growth forecasts upward for both 2025 (1.7% compared to 1.6%) and 2026 (2.3% as opposed to 1.8%). The anticipated Personal Consumption Expenditures (PCE) inflation is slightly lower, now at 2.9% for this year, reduced from 3.0%, and 2.4% for the following year, down from 2.6%. Projections for the unemployment rate remain steady at 4.5% for 2025 and 4.4% for 2026.