December Fed meeting: will the central bank deliver a third rate cut?

The Fed is expected to cut its benchmark rate by 25 basis points at its final meeting of the year. Officials meet in Washington as the rate-setting committee remains divided on how much further to ease.

The meeting is taking place without November employment and consumer price data because a government shutdown delayed those reports until mid-December. Those figures guide its dual mandate of stable prices and maximum employment. Hiring has slowed and layoffs have increased this year, while inflation has edged higher in recent months.

Economists broadly anticipate a quarter-point reduction, which would be the third straight cut. Futures prices imply a similar outcome, and prediction markets put the probability of a 25-basis-point move above 90%, with little chance of a larger reduction. A cut would lower interest rates tied to credit cards and home equity lines.

“The absence of recent inflation data leaves the Federal Reserve operating with limited visibility, while alternative labor indicators and political pressure are steering the committee toward a more accommodative policy stance,” Bankrate analyst Stephen Kates wrote in an email. “As discussions about affordability take center stage across the United States, the Federal Reserve appears poised to cut interest rates a third time.”

The 12-member Federal Open Market Committee (FOMC) shows clear divisions. New York Fed President John Williams has recently argued that labor market weakness outweighs inflation concerns. In October, Chair Jerome Powell cautioned that a December cut was not a foregone conclusion, pointing to signs of job-market resilience. In a report, Michael Pearce, chief U.S. economist at Oxford Economics, called it “a close call” and expects a quarter-point reduction.

Any reduction carries trade-offs. Lower borrowing costs can lift spending and, in some cases, add to price pressures even as many households report strain from higher costs for food, health care and other necessities. President Trump and other administration officials have criticized Powell over the pace of rate cuts this year.

Attention now turns to the outlook into early next year. A recent survey of economists points to a high likelihood the Fed holds rates at its January 27–28 meeting, with a 62% probability of no change. Forecasts generally call for more reductions in 2026, though timing remains uncertain. Maxime Darmet of Allianz Trade has argued the Fed could wait until March to begin cutting in 2026 if inflation remains above the 2% target.

Labor market trends remain a key risk. Employers announced more than 1.1 million job cuts through November, the most since 2020 and a 54% increase from a year earlier, according to outplacement firm Challenger, Gray & Christmas. Some companies cite efficiency gains from artificial intelligence in trimming headcount, a development that could weigh on hiring into 2026.

The decision comes during a year when tariffs have pushed some prices higher and affordability concerns have grown. The delayed government reports are due in mid-December.