The Fed Cuts Interest Rates to 3.5%—3.75% in December 2025

The United States (US) central bank, The Federal Reserve, once again cut its benchmark interest rate on December 10, 2025, local time, by 25 basis points (bps) to a range of 3.5%—3.75%.

This marks the third cut this year, specifically since September 2025, as shown in the chart.

In its statement, the central bank's Federal Open Market Committee (FOMC) explained its considerations. Primarily, these were due to slowing job growth and a rise in the unemployment rate through September 2025. Inflation has also risen since the beginning of the year and remains at a somewhat elevated level.

The Committee aims for maximum employment and 2% inflation in the long run. This is while monitoring that uncertainties in the economic outlook remain high. The Committee also assessed that downside risks to employment have increased in recent months.

"To support its goals and in light of evolving risk balance, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3-3/4 percent," The Fed wrote in a release on Wednesday, US time (December 10, 2025).

Although The Fed only projected one interest rate cut in 2026, market participants anticipate two. CME FedWatch data, as reported by Katadata, shows that federal funds futures contracts now price in a more than 77% chance that the central bank will cut rates twice more next year.

Interactive Brokers Senior Economist, José Torres, believes that the limited scope for interest rate cuts could be viewed negatively by market participants. However, The Fed's plan to gradually expand its balance sheet again is considered sufficient to address those concerns.

He stated that this step is a positive signal capable of offsetting expectations of more limited cuts. Furthermore, the latest dot plot projections indicate a more solid economic growth forecast and more stable inflation pressure expectations.

"And neutral labor expectations, developments that also support a bullish reaction in stock markets and yields," Torres said, as quoted by Katadata from CNBC on Thursday (December 11, 2025).