Fed meeting December 2025: The Federal Reserve heads into a pivotal week as markets brace for what could become the third straight interest rate cut of 2025. The Federal Open Market Committee (FOMC) meeting, which began on December 9, will conclude Wednesday afternoon with a widely expected 0.25% reduction in borrowing costs, as per a report. But behind the scenes, a growing split among policymakers is shaping up to be one of the most consequential developments of the year.
Fed Prepares for Third Straight 2025 Rate Cut as Markets Watch Closely
Investor expectations remain firmly tilted toward another quarter-point cut. As of December 8, market pricing via the CME FedWatch Tool showed an 87% probability of a reduction, slightly lower than earlier projections but still strong enough to suggest confidence in the outcome, as per a Red94 report.
If approved, the federal funds rate would drop from the current 3.75%–4.00% range to 3.50%–3.75%. That move would follow identical 0.25% cuts in September and October, marking an increasingly aggressive easing cycle after a prolonged period of higher rates through 2024 and early 2025.
Supporters of further cuts point to signs of labor market weakness as the main reason to continue lowering rates, even as inflation readings remain stubborn.
Fed Officials Split Ahead of High-Stakes FOMC Decision
What makes this meeting particularly notable is the level of disagreement among top officials. Fed Chair Jerome Powell and other dovish members appear prepared to endorse another cut, but several governors have openly questioned whether the central bank should continue easing, given inflation’s persistence, as per the Red94 report.
Labor Market Weakness Fuels Push for Continued Rate Cuts
Analysts expect multiple dissenting votes, a rarity for the Fed and a signal of how sharply opinions differ inside the institution. Those favouring cuts cite employment concerns, while critics fear that easing policy too quickly could keep inflation above target for longer.
Fed Rates Outlook 2026: Market Forecasts Show Only Two Rate Cuts Expected Next Year
Beyond Wednesday, expectations for rate cuts in 2026 have pulled back. CME data now indicates traders anticipate only two reductions next year, a sharp shift from earlier predictions of a more aggressive cutting path.
Goldman Sachs Sees Fed Rates Ending 2026 at 3.00%–3.25%
Goldman Sachs forecasts the federal funds rate ending 2026 in the 3.00%–3.25% range, assuming those two cuts materialize over the next 12 months, as per the Red94 report. That outlook suggests the rapid pace of rate reductions seen in 2025 is unlikely to continue.
Stock Market Volatility Rises Before Fed Announcement
The uncertainty surrounding the Fed’s next moves has already fueled volatility across major stock indices. While rate cuts typically lift markets by making borrowing cheaper and improving earnings outlooks, Powell’s cautious stance and the possibility of multiple dissents could blunt any immediate surge in investor optimism.
Mixed Economic Signals Leave Investors on Edge
The broader economic picture remains mixed. Employment has softened enough to justify lower rates in the eyes of some officials, yet inflation still sits above the Fed’s 2% target. Consumer spending has held up reasonably well, and the housing market has shown resilience in the face of earlier rate hikes.
FAQs
Why is the Federal Reserve expected to cut rates again?
Markets see signs of labor market weakness, and investors believe the Fed wants to keep borrowing costs lower.
How likely is a rate cut at the December 10 meeting?
Market pricing shows an 87% probability of a 0.25% cut.