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Informist, Thursday, Dec. 11, 2025

 

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--US FOMC cuts federal funds rate target range by 25 bps to 3.50-3.75%
--Median of US Fed officials' views shows 25 bps rate cuts in 2026
--US FOMC: Available data shows econ activity expanding at moderate pace
--US FOMC: Job gains slowed, unemployment rate edged up till Sept
--US FOMC: Inflation moved up since earlier in 2025, somewhat elevated
--US FOMC: Downside risks to employment rose in recent months
--US FOMC: Attentive to risks on both sides of inflation-jobs mandate
--US FOMC: Will buy shorter-term Treasury securities to maintain reserves
 

 

MUMBAI – The US Federal Open Market Committee Thursday voted to cut the federal funds target range by 25 basis points for the third straight meeting to 3.50-3.75%. The vote was extremely divided – Federal Reserve Governor Stephen Miran was in favour of a 50 bps rate cut, while members Austan Goolsbee and Jeffrey Schmid favoured keeping the policy rate unchanged. Fed Chair Jerome Powell voted with the majority.

 

The summary of economic projections released along with the rate decision showed only one 25-bps rate reduction in the policy rate in 2026 as per the median of expectations of Fed officials, after 100 bps of easing in 2024 and 75 bps in 2025.

 

With this, the FOMC has made good on the median of projections by Fed officials that rates would fall to this level by the end of 2025. The committee's statement did not change much from the previous meeting, highlighting that uncertainty about the economic outlook remained high. The rate decision was largely on expected lines, though the 10-year US Treasury yield was marginally down to 4.18% at 0130 IST after the policy outcome and amid Powell's comments in the post-policy press conference.

 

"The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months," it said. "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 phrase extent and timing is an addition from the previous statement.

 

Besides the rate decision, the committee decided to begin purchases of shorter-term Treasury securities. Starting December, the FOMC had stopped selling bonds to trim its balance sheet, a decision it had announced at the previous policy meeting in October. "The Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis." 

 

Economic activity had expanded at a moderate pace while job gains had slowed, pushing up the unemployment rate until September. The inflation rate had increased from earlier in 2025 and was "somewhat elevated", the committee said. Personal consumption expenditure inflation rose 2.8% on year in September, while core inflation through the measure was 2.9%, both higher than the Fed's 2.0% target.

 

More recent data was consistent with the reading of the "available data", the FOMC said, likely referring to the delays in government data releases caused by the US government shutdown between early October and mid-November. Backdated inflation and jobs data for September and October were still being released on the eve of the rate decision -- data released Tuesday showed US job openings increased marginally in October after increasing sharply in September.

 

The summary of economic projections showed an even more divided house than the FOMC vote. Three of the 19 Fed officials see the policy rate higher by 25 bps at the end of 2026. Four officials see the policy rate at the current level of 3.50-3.75%, with four also seeing it 25 bps lower and another four projecting it 50 bps lower in a year's time. Two officials see the target range at 2.75-3.00%, one sees it 100 bps lower than current levels, while one Fed official sees the policy rate all the way down to 2.00-2.25% by 2026-end.

 

Meanwhile, the median GDP growth was revised upwards to 1.7% annual growth on year in the December quarter of 2025 from 1.6% previously. The estimate for 2026 was also revised upwards by 50 bps to 2.3%. In the labour market, the unemployment rate median projection was seen at 4.5% by December, and settling at 4.4% at the end 2026 and at 4.3% at the end of 2027, all unchanged from the officials' previous projections in September. The projection for the core Personal Consumption Expenditures inflation was revised downward by 10 bps for both Oct-Dec 2025 and 2026 to 3.0% and 2.5%, respectively. It is seen above the 2.0% target even by the end of 2027 before being finally achieved in 2028.

 

In an interview with Politico published on Tuesday, US President Donald Trump had said that support for immediately cutting interest rates would be a requirement for anyone he chose to lead the Fed. Kevin Hassett has emerged as the frontrunner to succeed Powell, whose eight-year term as Fed chair ends in May.   End

 

Reported by Aaryan Khanna

Edited by Ashish Shirke

 

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