Federal Reserve Interest Rate Cuts: Powell Confirms The Third Fed Rate Cut

In a year defined by economic twists, fast-changing data, and persistent inflation pressures, the US Federal Reserve made a move that surprised few but mattered to everyone. On December 10, 2025, the Federal Reserve’s Federal Open Market Committee (FOMC) announced a 0.25% cut to its benchmark interest rate which is the third consecutive rate reduction of the year bringing the federal funds rate down to 3.50%-3.75%. This decision marks the lowest policy rate in nearly three years and reflects the central bank’s effort to balance a cooling job market with inflation that still sits above the Fed’s long-term 2% goal.

Let's break down with this blog what this means, why it happened, what experts are expecting next, and how it could impact everyday financial decisions.

Why the FED Cut Rates Again

Two forces shaped this move:

1. Weakening Labor Market Signals: Job growth in 2025 slowed significantly compared with earlier years, and unemployment in the US edged higher. Although jobs are still being added, the pace has softened enough that the Fed believes lower borrowing costs could help protect hiring and avoid a sharper downturn.
2. Inflation Still Above Target: Despite cooling from past peaks, inflation remains above the Fed’s 2% long-run target. Sticky prices, especially in areas like services and goods affected by tariffs, mean that policymakers cannot ignore price pressures entirely.

Taken together, these dynamics created an unusual backdrop for easing. Typically, rate cuts happen in clear recessions or dramatic slowdowns, not in patchy conditions where inflation hasn’t fully normalized.

A Deeply Divided FED

The FOMC vote was 9-3, which is a notable split for such a high-stakes decision. Of the three officials who dissented:

• One wanted a larger, half-point cut to stimulate more aggressively,
• Two preferred no change in rates at all.

That kind of division is rare and signals how uncertain policymakers are about where the economy is heading. Some see inflation risks still too high to justify aggressive easing. Others worry that a slowing labor market demands support.

This internal disagreement also showed up in the Fed’s projections (dot plot), where officials were not united on how many cuts might come next year. Many see only one more cut in 2026, while a few think rates may even hold steady if inflation doesn’t continue falling.

What Investors and Markets Are Watching

Here’s how financial markets reacted and what they’re focused on:

Stocks and Yields: Major indices like Dow, Nasdaq and S&P 500 rallied modestly after the rate cut, and long-term bond yields dropped which are the classic signs that markets expect lower rates to support economic activity.

Dollar Moves: The US dollar also softened against major currencies, reflecting expectations of a more prolonged period of relatively lower interest rates compared with global peers.

Market Expectations: Traders were already pricing in a high chance of a 25 basis point cut before the meeting, but the divided Fed and cautious language about future cuts suggest markets may recalibrate expectations for 2026.

Economist Views on FED: Mixed Signals Ahead

Experts are painting a nuanced picture:

• Some believe this “third cut” might be the last for a while, especially unless inflation data trends consistently downward in early 2026.
• Others argue that if labor market weakness worsens, the Fed may resume cuts next year.
• A common theme among economists is that the Fed is trying to avoid over-committing beyond the immediate months and is reserving judgement based on incoming data trends.

This careful, almost cautious policy stance reflects how hard it has become to forecast in the post-pandemic era, where headline inflation numbers, labor data, and economic indicators sometimes paint conflicting pictures.

What This Means for Everyday People

Here’s how the rate cut may affect households and businesses:

Borrowers: Lower policy rates often translate into cheaper loans over time. Mortgage rates, auto loans, and business borrowing costs can edge down, though financial institutions may adjust more slowly based on broader market conditions.

Savers: If banks cut deposit rates in response, yields on savings accounts and certificates of deposit may stay low or drop slightly. This is good for borrowers and investors seeking growth assets, but not so great for fixed-income savers.

Investors: Equities often benefit from lower interest rates, which reduce discount rates and can lift stock valuations. But the Fed’s uncertain tone also hints at potential volatility if key data surprises to the downside or upside.

Looking Ahead: What to Watch Next

As we move into 2026, here are the key indicators that will likely shape the Fed’s next steps:

• Inflation Reports: Core and headline inflation figures will be critical.
• Jobs Data: Payrolls, unemployment changes, and wage growth.
• Consumer and Business Sentiment: Confidence influences spending, which feeds back into growth and prices.
• Financial Stability Signals: Credit markets, yields, and liquidity conditions.

In a world where monetary policy shapes investment portfolios and everyday finances alike, the Fed’s third rate cut in 2025 underscores a central challenge: walking the fine line between supporting growth and keeping inflation in check. As 2026 unfolds, every jobs report and price index could shift the policy path.

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