The Federal Reserve cut interest rates by 25 basis points to 3.5%–3.75%, delivering a third consecutive reduction that met expectations but exposed a widening policy divide within the central bank.
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Policymakers decided to ease borrowing costs again, even as inflation remains elevated, citing a softer labor market as the reason.
The December meeting showed a growing internal dissent at the Fed, with three members voting for a different outcome.
Governor Stephen Miran voted for a larger 50-basis-point move, while Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee voted for a hold.
What Changed In The Fed Guidance?
In the press release, the Federal Open Market Committee slightly revised its forward guidance to signal a more patient stance for 2026.
In September, the Fed said it would "carefully assess incoming data, the evolving outlook, and the balance of risks" when considering additional adjustments.
The new wording steers the debate toward the "extent and timing" of any move. That signals a slower path. It implies cuts may be smaller, delayed or spaced out as officials grow more cautious about the 2026 outlook.
What Does The New Dot Plot Reveal?
Growth expectations slightly improved for 2025, with real GDP rising to 1.7% from 1.6% in September. Forecasts for 2026 were upgraded from 1.8% to 2.3% and for 2027 from 1.9% to 2%. The longer-run trend sits at 1.8%.
The unemployment outlook barely changed. Policymakers held the 2025 forecast at 4.5%, kept 2026 at 4.4% and trimmed 2027 from 4.3% to 4.2%. Inflation runs lower than in September.
PCE inflation falls to 2.9% for 2025 from 3%. Core PCE dips to 3% from 3.1%. Both glide toward the 2% target by 2028.
Rate expectations stayed anchored. The September path showed 3.6% in 2025, 3.4% in 2026 and 3.1% in 2027, with a longer-run level of 3%
| Economic Variable | 2025 | 2026 | 2027 | 2028 | Longer Run |
|---|---|---|---|---|---|
| Real GDP Growth (Dec. 2025) | 1.7% | 2.3% | 2.0% | 1.9% | 1.8% |
| Real GDP Growth (Sept. 2025) | 1.6% | 1.8% | 1.9% | – | 1.8% |
| Unemployment Rate (Dec. 2025) | 4.5% | 4.4% | 4.2% | 4.2% | |
| Unemployment Rate (Sept. 2025) | 4.5% | 4.4% | 4.3% | – | 4.2% |
| PCE Inflation (Dec. 2025) | 2.9% | 2.4% | 2.1% | 2.0% | |
| PCE Inflation (Sept. 2025) | 3.0% | 2.6% | 2.1% | – | 2.0% |
| Core PCE Inflation (Dec. 2025) | 3.0% | 2.5% | 2.1% | 2.0% | |
| Core PCE Inflation (Sept. 2025) | 3.1% | 2.6% | 2.1% | – | |
| Federal Funds Rate (Sept. 2025) | 3.6% | 3.4% | 3.1% | ||
| Federal Funds Rate (Sept. 2025) | 3.6% | 3.4% | 3.1% | – | 3.0% |
All Eyes On Powell
Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET. At the Oct. 30 press conference, Powell surprised the market with hawkish remarks.
More than a month ago, Powell indicated “a further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.”
He added that policy was not “on a preset course” and urged a slowdown while “driving in the fog” due to the lack of economic data.
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