Fed makes third rate cut in 2025, sees one cut in 2026

Powell signals higher bar for future reductions as internal rift deepens

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A divided US Federal Reserve lowered interest rates on Dec 10 for a third consecutive time in 2025, flagging labour market concerns even as inflation remained elevated as President Donald Trump’s tariffs bite.

But the Fed pencilled in just one more rate cut in 2026 as chairman Jerome Powell signalled a higher bar for future reductions.

Mr Powell told a press briefing that officials are in a good position to determine the “extent and timing of additional adjustments based on the incoming data, the evolving outlook and the balance of risks”.

The Dec 10 cut by a quarter percentage point brings rates to a range between 3.5 per cent and 3.75 per cent, the lowest in around three years, a move aligned with market expectations.

But a rift within the central bank deepened with three officials voting against the modest reduction.

Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeffrey Schmid instead sought to keep rates unchanged.

Fed governor Stephen Miran backed a bigger, half-percentage-point cut.

The Fed’s rate-setting committee consists of 12 voting members — including seven members of the board of governors, the New York Fed president and a rotation of reserve bank presidents — who take a majority vote in deciding the path of rates.

Mr Powell noted that some disagreement was expected, pointing to tensions between inflation risks and a weakening job market.