Federal Reserve lowers its benchmark interest rate by 0.25 percentage points in third straight cut
The Federal Reserve made a significant move on Wednesday by cutting its benchmark interest rate by 0.25 percentage points, bringing the federal funds rate to its lowest level in more than three years. This decision marks the third consecutive rate cut since September, lowering the federal funds rate by a total of 0.75 percentage points this year.
The reduction lowers the federal funds rate to between 3.5% and 3.75%, down from its prior range of 3.75% to 4%. Despite the lack of key government economic data due to the recent U.S. government shutdown, the Fed has been closely monitoring the slowdown in monthly job growth and rising inflation. ADP figures showed that employers shed 32,000 jobs in November, indicating ongoing challenges in the labor market.
In announcing the rate cut, the Federal Reserve hinted that it may want to see more economic evidence before considering additional rate cuts in 2026. Fed officials signaled they expect to lower rates just once next year, stating that they would carefully assess incoming data, the evolving outlook, and the balance of risks.
Fed Chair Jerome Powell emphasized the importance of waiting to observe how the economy evolves before making another cut. The Federal Reserve also issued new U.S. inflation, economic growth, and unemployment projections for 2026, forecasting a slight decrease in inflation and steady unemployment levels.
Ryan Sweet, chief global economist at Oxford Economics, predicted an “extended pause” in rate cuts based on the latest Fed guidance. He noted that monetary policy might not significantly boost hiring due to various underlying issues affecting the labor market.
By cutting rates, the Fed aims to stimulate hiring by making credit more affordable for businesses to expand and hire at a lower cost. Additionally, consumers tend to spend more when financing is cheaper, providing a boost to the overall economy.
However, not all members of the FOMC agreed with the rate cut decision. Three members dissented, representing the most dissents in six years and highlighting divisions within the committee. As the Fed prepares for a leadership shift next year, with Powell’s term ending in May 2026, there is uncertainty surrounding future policy decisions.
Despite the imminent change in leadership, Powell remains focused on ensuring a strong U.S. economy for his successor. The Fed’s decision to cut interest rates reflects a cautious approach to supporting economic growth amidst ongoing challenges in the labor market and inflation.
