The Federal Reserve announced a 25-basis-point cut to the federal funds rate yesterday, lowering the target range to 3.50%–3.75%. This marks the third consecutive rate reduction following prior cuts in September and November, and represents the final policy action of 2025.

The decision reflects the Fed’s response to slowing job growth and elevated inflation pressures, and aims to support broader economic activity by making borrowing cheaper. By trimming rates again, policymakers aim to ease financial conditions and sustain growth, though the decision reflected growing uncertainty inside the committee, with several members signaling differing views on the appropriate policy path.

Markets reacted positively, with U.S. equities moving higher as investors interpreted the cut as a supportive shift heading into year-end. Risk assets broadly strengthened on expectations that lower borrowing costs could help stabilize economic activity and bolster corporate earnings.

Looking ahead, the Fed’s projections suggest just one additional rate cut in 2026, underscoring a more measured approach as the central bank weighs inflation trends and labor market fundamentals.

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