Design Highlights
- The recent 25 basis point cut is the third in a row, indicating a trend towards easing monetary policy.
- Federal Reserve members show division on future cuts, suggesting uncertainty in upcoming decisions.
- Economic indicators like rising unemployment and inflation complicate the Fed’s path forward.
- Consumer sentiment remains cautious, indicating that the rate cuts may not significantly boost confidence.
- A “wait and see” approach suggests potential for more pauses or gradual adjustments in future policies.
In a move that surprised absolutely no one, the Federal Reserve decided to cut the federal funds rate by 25 basis points in December 2025, bringing it down to a target range of 3.5%–3.75%.
This was the third consecutive cut of the year, following similar reductions in September and October. Clearly, the Fed is on a roll. Or maybe they’re just panicking? The current rate is the lowest borrowing cost we’ve seen since 2022, which feels like ages ago.
But why the cuts? Well, the economy is showing signs of cooling down. Job gains are slowing, and unemployment is creeping upwards like a bad habit. Cumulatively, this marks a total reduction of 1.75 percentage points since the peak back in 2024. The Fed’s balance sheet runoff is expected to conclude in early December 2025, indicating that they are preparing for potential shifts in monetary policy. Additionally, these cuts aim to address the challenges posed by higher inflation and unemployment.
So, what’s next? Good luck figuring that out.
The Federal Open Market Committee (FOMC) had a bit of a spat over the decision, with three members dissenting. One thought a 50 basis point cut would be a better idea, while two preferred to keep things exactly as they were.
Meanwhile, three non-voting policymakers raised their eyebrows too, expressing their opposition. It’s like they couldn’t agree on whether to cut the cake or just leave it alone.
On the economic front, things are a bit hazy. Activity is expanding moderately, but job growth is slowing, and inflation is still hanging around like an uninvited guest.
This keeps the Fed in a tricky position, trying to balance maximum employment with that pesky 2% inflation target. The uncertainty is palpable, and risks to employment are rising.
Now, let’s talk market reactions. The rate cut has reduced borrowing costs, sure, but that doesn’t mean consumers are doing cartwheels. Borrowing remains relatively pricey compared to the good old days.
High-yield savings accounts? They peaked near 5% APY but have now dropped to about 4.2%. Thanks, Fed!
Looking ahead, Fed Chair Powell has thrown a wet blanket on hopes for more cuts. He suggested there’s a “high bar” to jump over before any further reductions happen.
The Fed is taking a “wait and see” approach, which sounds like a classic case of indecision. With projections hinting at a potential pause or very gradual easing, the road ahead looks bumpy.
Meanwhile, Americans are grappling with other rising costs as health insurance premiums are set to increase significantly in 2025, adding another layer of financial pressure.
Buckle up!
