Washington: The US Federal Reserve opened its final chapter of 2025 with a small but meaningful step, trimming its benchmark interest rate by 25 basis points even as the country digests delayed economic data from the recent government shutdown. With this move, which was announced after a closely watched meeting in Washington, the federal funds rate now stands in the range of 3.5 to 3.75 per cent, its lowest level since late 2022, according to a report by CBS News.
This reduction becomes the third straight cut since September, adding up to a total easing of 0.75 percentage points for the year. The central bank has been handling a difficult moment in the US economy, where job creation is cooling noticeably while inflation remains stubborn in key pockets.
Even without the full set of timely numbers, Fed officials kept a close eye on private-sector indicators, including an Automatic Data Processing (ADP) report that showed a loss of 32,000 jobs in November, a sign that pressure on the labour market has intensified.
In its statement, the Federal Open Market Committee said it would keep evaluating “incoming data, the evolving outlook and the balance of risks” before deciding on any further adjustments. The message reflected the Fed’s attempt to stay measured as it heads into a leadership transition next year.
New quarterly projections shared by the Fed show officials expect only one rate cut in 2026, offering a hint of the caution inside the boardroom. Updated forecasts also paint a clearer picture of where the central bank believes the economy is heading. The Fed expects its preferred inflation gauge, the Personal Consumption Expenditures index, to ease to 2.4 per cent next year, a step down from the 2.9 per cent median estimate for 2025.
Economic growth, meanwhile, is projected to reach 2.3 per cent in 2026, with unemployment holding consistently at 4.4 per cent.
Economists outside the central bank read the signals in a similar way. Ryan Sweet, chief global economist at Oxford Economics, told investors that the Fed’s latest guidance points to what he described as an “extended pause” in the rate-cut cycle.
“The Fed is not going to be able to help the labour market because of what ails it,” he said, adding that monetary policy alone cannot address the structural issues weighing on hiring.
The latest cut brings the benchmark rate back to levels last seen in early November 2022, a period when the Fed was still tightening aggressively to respond to runaway inflation in the aftermath of the pandemic.
Lower rates typically encourage borrowing, which in turn supports hiring and consumer spending, but the central bank appears determined to proceed carefully.
The decision itself exposed a rare division inside the Federal Open Market Committee (FOMC). While Jerome Powell and eight members backed the 0.25-percentage-point cut, three policymakers disagreed. This is the highest level of dissent in six years.
Austan Goolsbee and Jeffrey Schmid argued for keeping rates unchanged, while Stephen Miran pushed for a 0.5-percentage-point reduction.
These debates come at a moment for the institution. Powell’s term as Fed chair ends in May 2026, and US President Donald Trump is preparing to select his successor. In a note shared with clients and cited by CBS News, Jeff Schulze of ClearBridge Investments said that “the outlook from the Powell-led FOMC bears less than usual on future Fed policy decisions given the imminent change in leadership”. It captures the sense of transition that now hangs over the central bank.
