The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) cut its benchmark interest rate by 25 basis points to a range of 3.50% to 3.75% following its two-day policy meeting, according to an official statement issued on Wednesday, 10 December.

The decision for the third rate cut this year passed with a 9–3 vote, underscoring growing divisions inside the FOMC.

Fed Chair Jerome Powell described the outcome as a “close call” during his news conference, adding that he “could make a case for either side”.

“Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments,” Powell noted.

According to him, Fed predicts only a modest rate cut in 2026, with inflation forecast to ease next year even as economic growth strengthens and unemployment remains moderate.

Powell said policymakers were now in a position to “wait and see how the economy evolves”.

He also reiterated that the inflationary impact of recent tariffs is likely to be temporary.

“A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level,” Powell said, emphasising the committee’s responsibility to prevent such price shocks from turning into ongoing inflation pressure.

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Alongside the rate cut, the Fed announced it would resume purchases of U.S. Treasury securities, beginning with a $40 billion operation on Friday (12 December).

The central bank said these purchases are expected to “remain elevated for a few months” before gradually declining.

Powell said the current policy rate is approaching what many officials consider a neutral level — one neither stimulating nor restraining economic activity — following cumulative cuts over the past year.

Still, he stressed that the path ahead will depend on incoming data, as the committee evaluates whether inflation is continuing to move sustainably toward the Fed’s 2% target.

Meanwhile, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid opposed the cut and argued for holding rates steady, warning that further easing risked fuelling inflation.

Federal Reserve Governor Stephen Miran dissented in the opposite direction, favouring a deeper half-point reduction to counter rising risks in the labour market.

The December move marks the Fed’s third consecutive rate cut since September 2025, bringing total reductions for the year to 75 basis points after the central bank left interest rates unchanged throughout 2024.

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