Federal Reserve lowers its benchmark interest rate by 0.25 percentage points in third straight cut

The Federal Reserve on Wednesday lowered 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 – which banks charge each other for short-term loans – to between 3.5% and 3.75%, down from its previous range of 3.75% to 4%. The Fed’s move marks the third straight rate cut since September, lowering the federal funds rate by a total of 0.75 percentage points this year.

Despite the lack of key economic data from the government due to the recent US crisis government shutdownThe Fed is closely monitoring slowing monthly job growth as well as rising inflation. Figures from ADP, which tracks private sector wages, show that employers eliminated 32,000 jobs in November, a sign of continued headwinds in the labor market.

The Fed mentions only one rate cut in 2026

But in announcing the move, the Federal Reserve indicated it may want to see more economic evidence to support further rate cuts in 2026. In quarterly economic projections released with their latest statement, Fed officials indicated they planned to cut rates just once next year.

“In considering the magnitude and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully evaluate 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 easing in the near term,” Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in an email. “While this leaves the door open for future reductions, the weak labor market will have to set the bar high.”

This decision lowers the federal funds rate to its lowest level since early November 2022when policymakers raised the range to between 3.75% and 4%. At that time, the central bank was raising rates – its most powerful tool for curbing inflation – as inflation rose during the pandemic.

By lowering rates, the Fed is acting to stimulate hiring by making credit cheaper, allowing businesses to expand and hire more cheaply. Consumers, meanwhile, tend to spend more when financing is cheaper, providing an extra boost to the economy as a whole.

Not all members of the FOMC, the Fed’s rate-setting committee, agreed with the decision to cut by a quarter point. While Fed Chairman Jerome Powell joined eight other committee members in voting in favor of the cut, three members dissented, the Fed said. This represents the highest number of dissents in six years and is a sign of divisions within a committee that traditionally works by consensus.

FOMC members Austan Goolsbee and Jeffrey Schmid voted in favor of maintaining the previous range, while Stephen Miran voted in favor of a 0.5 percentage point reduction.