The Federal Reserve cut interest rates by 25 basis points on Wednesday, lowering the federal funds target range to 3.50%–3.75% in a move that had been broadly anticipated by markets. It marks the third consecutive quarter-point reduction and brings borrowing costs to their lowest level in nearly three years. The decision comes at a time when policymakers are still operating without several major economic data releases that remain delayed due to the ongoing U.S. government shutdown.
In its policy statement, the Fed reiterated that the economic outlook remains highly uncertain, noting that risks to employment have increased in recent months. The central bank also highlighted a decline in reserve balances and said it will purchase short-dated Treasury securities when necessary to ensure an ample supply of reserves in the financial system.
Market moves were muted following the announcement. Bitcoin briefly swung before stabilizing near $92,400, equity indexes ticked higher, and the 10-year Treasury yield slipped to 4.15%.
The decision again exposed the unusually wide rift within the Federal Open Market Committee. Two officials — Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee — opposed the cut, preferring to leave rates unchanged. Meanwhile, Governor Stephen Miran dissented in the opposite direction, calling for a steeper 50 basis point reduction.
Updated Projections Signal Softer Inflation, Stronger Growth
The meeting also delivered new economic projections. The Fed now expects core inflation to ease to 3% in 2025 and 2.5% in 2026, trimming its previous outlook by 10 basis points. Growth forecasts moved higher, with GDP projected to rise 1.7% next year and 2.3% in 2026. Policymakers’ rate path expectations were largely unchanged, with the dot plot still indicating just one cut scheduled for 2026 — even as investors price in two cuts in 2025.
The announcement lands during a period of restricted economic visibility due to the shutdown, accompanied by elevated political pressure as President Trump continues criticizing Chair Jerome Powell and weighs potential replacements once Powell’s term ends next year.
Attention now turns to Powell’s press conference at 2:30 p.m. ET, where markets hope to glean clearer signals about the trajectory of monetary policy. As of early afternoon, traders assigned roughly a 24% probability to another rate cut at the Fed’s January meeting, according to CME FedWatch.
Share this content:
