Federal Reserve lowers its benchmark interest rate by 0.25 percentage points in third straight cut
The Federal Reserve on Wednesday cut its benchmark interest rate by 0.25 percentage points, bringing the federal funds rate to its lowest level in more than three years.
The reduction lowers the federal funds rate — what banks charge each other for short-term loans — to between 3.5% and 3.75%, down from its prior range of 3.75% to 4%. The Fed’s decision marks the third consecutive rate cut since September, lowering the federal funds rate by a total of 0.75 percentage points this year.
Despite the lack of key government economic data because of the recent U.S. government shutdown, the Fed has been closely monitoring the slowdown in monthly job growth as well as rising inflation. Figures from ADP, which tracks private payrolls, showed that employers shed 32,000 jobs in November, a signal of continuing headwinds in the labor market.
But in announcing the decision, the Federal Reserve signaled that it may want to see more economic evidence to support additional rate cuts in 2026. In quarterly economic projections issued along with their latest statement, Fed officials signaled they expect to lower rates just once next year.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks,” the Federal Open Market Committee, or FOMC, said in its statement.
“The Fed has reached the end of ‘insurance cuts’ and the onus is on labor market data to weaken further to justify additional near-term easing,” said Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, in an email. “While this leaves the door open to future cuts, labor market weakness will have to clear a high bar.”
The move lowers the federal funds rate to its lowest level since early November 2022, when policymakers lifted the range to 3.75% to 4%. At that time, the central bank was boosting rates — its most potent tool for curbing inflation — as inflation surged during the pandemic.
By cutting rates, the Fed is acting to spur hiring by making credit cheaper, allowing businesses to expand and hire at a lower cost. Consumers, meanwhile, tend to spend more when financing is less expensive, giving the broader economy an extra lift.
Not all members of the FOMC, the Fed’s rate-setting panel, agreed with the move to cut by a quarter point. While Fed Chair Jerome Powell was joined by eight other committee members in voting in favor of the reduction, three members dissented, the Fed said. That represents the most dissents in six years and is a sign of divisions on a committee that traditionally works by consensus.
FOMC members Austan Goolsbee and Jeffrey Schmid voted to maintain the previous range, while Stephen Miran voted in favor of a 0.5 percentage-point cut.
