The U.S. Federal Reserve enacted a widely anticipated 25 basis point rate reduction on Wednesday, decreasing its benchmark fed funds rate range to 3.50% to 3.75%. This represents the third consecutive quarter-point cut, bringing short-term borrowing costs to their lowest point since 2022.
“Uncertainty regarding the economic outlook is still high,” stated the Fed in its policy announcement. “The Committee is mindful of the risks on both sides of its dual mandate and believes that downside risks to employment have increased in recent months.”
The Fed also mentioned a decline in reserve balances and stated it plans to initiate purchases of shorter-term Treasury securities as necessary to “ensure an ample supply of reserves.”
The price of bitcoin experienced volatility in the moments following the announcement, hovering around the $92,400 mark. U.S. stocks moved slightly higher, and the 10-year Treasury yield fell two basis points to 4.15%
This rate cut is significant, especially given the notable public dissent among Fed members regarding the direction of monetary policy. Several members have recently expressed strong opposition to the easing not only today but also to the 25 basis point cut made in the previous meeting in October.
Specifically, two members — Kansas City Fed’s Jeffrey Schmid and Chicago Fed’s Austan Goolsbee — voted to maintain current policy. Additionally, Fed Governor Stephen Miran, a recent Trump appointee, advocated for a 50 basis point cut.
Economic projections update
In conjunction with the policy decision, this Fed meeting provided an updated series of the central bank’s economic projections.
Core inflation is now expected to be 3% for 2025 and 2.5% for 2026, each down by 10 basis points from prior forecasts. GDP growth is now anticipated to be 1.7% this year and 2.3% in 2026, an increase from previous estimates of 1.6% and 1.8%, respectively.
The so-called “dot plot” remains relatively unchanged, with policymakers still anticipating only one rate cut in 2026, despite markets factoring in two rate cuts for next year.
This news comes at a time when policymakers are still lacking several essential economic data releases, which are delayed or suspended due to the U.S. government shutdown. Adding to the situation is President Trump’s ongoing criticism of current Fed Chair Jerome Powell and his pursuit of a successor as Powell’s term as chair concludes next year.
Focus now shifts to Powell’s post-meeting press conference at 2:30 pm ET, where observers will seek to gain further insight into his and the Fed’s perspectives on the future trajectory of monetary policy.
