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The Federal Reserve cut interest rates by 25 basis points at the conclusion of its two-day meeting on Wednesday, marking the central bank’s third cut of the year.
Fed officials were split on the decision to lower rates to a range of 3.50%-3.75%, with policymakers dissenting on both sides. Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeff Schmid favored holding rates steady, while Fed governor Stephen Miran favored a 50 basis point rate cut.
Along with its final policy decision of the year, the Fed also published its final Summary of Economic Projections (SEP) for 2025, which includes forecasts from Fed officials on economic growth, inflation, and interest rates for the coming years.
The SEP showed the Fed’s median forecasts calling for one interest rate cut in 2026, in line with the projections made in September.
At the press conference, Fed Chair Jerome Powell underscored that the Fed remains in a “challenging” position, with both sides of its dual mandate in tension. The anticipation of new leadership at the Fed has also added another layer of intrigue.
US stocks rallied on Wednesday in the wake of the decision, with the S&P 500 (^GSPC) closing just off its record high and the small-cap Russell 2000 (^RUT) reaching an all-time high. However, tech valuation concerns ended the buoyant mood on Wall Street on Thursday.
Here are the latest updates and analysis on the Fed’s policy decision.
LIVE 45 updates
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Fed Chair Powell reiterated that the Fed has tilted the balance of its risk-management framework toward the labor market after previously favoring the inflation mandate.
“There is no risk-free path for policy as we navigate this tension between our employment and inflation goals,” Powell said in his prepared remarks.
“A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level,” he continued. “Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem, but with downside risks to employment having risen in recent months, the balance of risks has shifted.”
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‘Silent dissents’ reveal growing Fed resistance to Powell’s cuts
Bloomberg reports:
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There’s not much the Fed can do about affordability, Apollo’s Torsten Sløk says
At the Fed’s press conference, Fed Chair Jerome Powell acknowledged that many consumers are struggling with higher inflation. “We hear loud and clear” the concerns about affordability, Powell said.
But what Powell and the Fed can do about affordability is a different story.
“There’s actually not much they can do about that,” Apollo chief economist Torsten Sløk told Yahoo Finance on Wednesday. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
Sløk noted that a greater share of consumer spending is going toward basic needs, such as healthcare, housing, and education, all of which have become more expensive in recent years. This has made the Fed’s job more difficult because, in the housing market, for instance, structural factors like low supply are keeping prices high — and somewhat impervious to monetary policy.
“If you begin to see the Fed lower interest rates, that’s probably going to increase home prices even more,” Sløk said. “So in that sense, the Fed doesn’t really have any tools to solve the affordability crisis.”
This sentiment was echoed by Powell, who noted that a quarter-point change in the federal funds rate is not “going to make much of a difference” in the housing market.
More broadly, Powell said, “A lot of [the affordability issue] is not the current rate of inflation. A lot of that is just embedded higher cost due to higher inflation in 2022 and ’23.”
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This week’s Fed meeting shows just how much the next Fed leader matters
Yahoo Finance’s Hamza Shaban observes in today’s Morning Brief newsletter that the anticipation of new Federal Reserve leadership adds another layer of uncertainty to the Fed’s mission next year. He writes:
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What is the federal funds rate, and how does it affect you?
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Powell on the divided Fed
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When the Fed lowers rates, how does it impact stocks?
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When will mortgage rates go down? Outlook after the Fed meeting.
Yahoo Finance contributor E. Napoletano reports:
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Fed sees inflation peaking in Q1 — assuming no new major tariffs
In his press conference, Fed Chair Powell pinned the inflation “overshoot” on tariffs, as noted below.
However, that also means that, with the recent easing of tariffs by the Trump administration, consumers may see inflation peak early next year.
“Let’s assume there are no major new tariff announcements,” Powell stated. “Inflation from goods should peak in the first quarter or so — or roughly.”
In its Summary of Economic Projections, the Fed indicated that it expects inflation to cool, with core PCE rising 2.5% by the end of 2026, down from 3% at the end of this year. Though Powell also cautioned that “no one” is able to predict inflation peaking with precision.
Powell’s comments came as the White House didn’t impose any new significant tariffs last month and has started to backtrack on some existing tariffs on grocery store items to address affordability concerns.
As my colleague Ben Werschkul reported Wednesday, the government’s tariff revenues in November ticked down for the first time since President Trump began implementing his historic duties, according to new totals from the US Treasury Department.
The agency’s monthly statement for November, released on Wednesday, saw a reading of $30.76 billion in customs duties collected, following an October reading of $31.35 billion.
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Apollo CEO Marc Rowan: There’s no need for another rate cut from the Federal Reserve
Apollo Global Management (APO) co-founder and CEO Marc Rowan told Yahoo Finance’s Brian Sozzi that the economy may be in a place where more rate cuts from the Fed aren’t needed. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
“Internally at Apollo, we do not think there’s a need for a cut,” Rowan said on Wednesday, moments before the Fed cut rates for the third time in 2025. “There’s nothing in the data that tells us that, but at the same time, I understand the decision.”
Rowan said that there are other inflationary forces at play in the long term.
“We have governments around the world who are borrowing record amounts of money,” Rowan continued. “We are, for maybe good and valid reasons, fractionalizing our labor supply through immigration reform. We’re fractionalizing our flow of goods through tariffs and other measures, again for good and valid reasons. Those things tend to be inflationary.”
“Certainly, borrowing lots of money has the potential to be inflationary. Depreciating our currency has the tendency to be inflationary.”
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Trump weighs in on Fed decision, saying rates ‘should be much lower’
President Trump expressed that, in his view, the Federal Reserve didn’t go far enough in its rate cut on Wednesday, saying that the 0.25% cut is “a rather small number that could have been doubled, at least doubled.”
“Our rates should be much lower,” Trump stated, calling Fed Chair Powell a “stiff” and “dead head.”
Trump has not been shy this year in making his preferences for much lower rates known. In July, Trump said in a social media post that the federal funds rate was 3 percentage points too high.
Although the Federal Reserve is designed to operate independently, the president will be able to influence the makeup of the central bank when he selects the next Fed chair to replace Powell, whose term ends in May. Trump has said he will use a willingness to cut rates as a litmus test for his pick.
“They’re killing the growth because they’re so afraid of inflation,” Trump said Wednesday.
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Powell takes ‘risk-friendly’ tone on productivity and growth
Markets reacted positively after the Fed cut interest rates by a quarter point on Wednesday.
And part of the optimism seems to be around the Fed’s outlook for the economy, which it sees growing at a 2.3% rate in 2026 after this year’s 1.7% GDP growth.
“The take on productivity and growth is very risk-friendly,” Evercore ISI’s Krishna Guha wrote in a note on Wednesday. “The Fed chair suggests productivity may be running about 2%, allowing the economy to grow faster without generating excess inflation.”
In essence, lower rates, falling inflation, and faster economic growth is a recipe for higher corporate profits, a stabilization in the labor market, and as evidenced on Wednesday, higher stock prices.
Fed officials expected to make one more rate cut next year, the same number projected in September. As of Wednesday afternoon, markets were pricing in additional rate cuts in April and June.
Guha said Powell sounded “very upbeat on productivity and growth, including AI effects,” during his press conference on Wednesday.
Adding Powell came across with a “calm rather than edgy in tone, suggesting he is comfortable and in charge rather than on the ropes as in October.”
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Powell says tariffs have caused inflation ‘overshoot’
Fed Chair Jerome Powell on Wednesday pointed to President Trump’s tariffs as the reason for the current overshooting of the central bank’s 2% inflation target.
“It’s really tariffs that are causing most of the inflation overshoot,” Powell said, while emphasizing that the central bank expects the tariffs to represent a “one-time” increase in prices.
“Our job is to make sure that it is,” he added.
Powell also declined to weigh in on a reporter’s question over the impacts of a potential Supreme Court decision striking down Trump’s most sweeping tariffs.
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Fed Chair Powell on his legacy at the Fed
Here’s Fed Chair Powell’s response when asked what he wants his legacy as Fed chair to be:
When asked if he would stay on the Fed Board of Governors after his term as chair expires, Powell only stated: “I’m focused on my remaining time as chair.”
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Powell says Fed rate cut won’t do much to help the housing market
The housing market’s affordability challenges aren’t likely to be solved anytime soon by the Fed, Chair Powell said.
“I don’t know that a 25 basis point decline in the federal funds rate is going to make much of a difference for people,” Powell said.
He noted that low housing supply and favorable mortgage rates during the pandemic era, which are keeping people in their homes, are the main factors creating “significant challenges.” Powell added and that those secular issues are unlikely to change in the near term. Currently, the average 30-year fixed-rate mortgage rate is holding above 6%.
“So housing is going to be a problem,” Powell said. “We can raise and lower interest rates, but we don’t really have the tools to address a structural housing shortage.”
Read more: When will mortgage rates go down? Outlook after the Fed meeting.
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Why Wall Street is calling Wednesday a ‘hawkish cut’
The Federal Reserve cut interest rates by a quarter-point on Wednesday.
Capital Economics, among other Wall Street firms, characterized the decision as “hawkish cut,” with the Fed pushing back against more aggressive rate cuts in 2026.
“The new Summary of Economics Projections (SEP) shows that the FOMC still expects one more interest rate cut next year, but the range of projections is unusually wide, even if we exclude Stephen Miran’s extreme views. Either way, we doubt that the Fed will cut again until after a new Chair replaces Jerome Powell in May,” Capital Economics economist Stephen Brown wrote in a note to clients.
The Fed expects one more interest rate cut next year, according to its latest dot plot published along with its Summary of Economic Projections (SEP) on Wednesday.
Beyond Stephen Miran, who called for a 50 basis point cut, there were also two other dissents, with Kansas City Fed president Jeffrey Schmid and Chicago Fed president Austan Goolsbee both preferring no cuts at this meeting.
Brown added: “Unsurprisingly given that division, the statement signaled a pause from here, noting that the FOMC will now consider ‘the extent and timing of additional adjustments to the target range.'”
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Powell people losing jobs to AI is ‘not a big part of the story yet’
The AI revolution is here, we’re told.
But how much that is weighing on the US labor market doesn’t seem clear yet, according to Federal Reserve Chair Jay Powell.
“[It’s] probably part of the story. It’s not a big part of the story yet, and we don’t know whether it will be,” Powell said. “But you know, for example, … you can’t miss the big announcements of layoffs and also companies saying that they’re not going to hire anybody for a long time, and they cite AI. That’s all clearly happening.”
Powell also noted, however, that unemployment insurance claims are not rising while data suggests job finding rates are low, a situation Powell called ” a little bit curious.”
The Fed chair added that while previous cycles of tech innovation have generally seen some jobs destroyed and others created, “when you get through all that, you have higher productivity and you have new jobs, and there are enough jobs for people.”
“What will happen here? We’re going to have to see,” Powell said.
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Stocks climb to session highs after Powell discounts rate hike
Stocks climbed to session highs after Fed Chair Powell said that he doesn’t expect a rate hike in January.
The S&P 500 (^GSPC) rose 0.75%, putting it on track for a record high close. The Dow Jones Industrial Average (^DJI) climbed 1.2%, or over 500 points. The tech-heavy Nasdaq Composite (^IXIC) was trading advanced 0.4%.
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Fed to cast ‘skeptical eye’ on shutdown-distorted economic data
Fed Chair Powell noted that the Fed will cast a “skeptical” eye on the incoming influx of labor market and inflation data as it contemplates its next decision at the January FOMC meeting.
“We’re going to need to be careful in assessing, particularly the household survey data,” Powell said, referring to the Consumer Price Index, specifically. “There are very technical reasons about the way data are collected in some of these measures, … so that the data may be distorted.”
The government shutdown, which created a data vacuum in October and November, created a backlog of standard economic reports — some of which were canceled, some of which were delayed. Next week, the Bureau of Labor Statistics will publish its monthly employment situation report for October and November.
“We’re going to get data, but we’re going to have to look at it carefully and with a somewhat skeptical eye,” Powell said. “We will have a lot of the December data by the time of the January [meeting], so we expect to see a lot more. But I’m just saying that the what we get for, for example, CPI or for the, for the household survey, we’re going to we’re going to look, we’re going to look at that really carefully and understand that it may be distorted…”
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Powell doesn’t expect the Federal Reserve’s next move to be a rate hike
The last two times the Federal Reserve cut interest rates by 0.25% in three consecutive meetings — first in 1996-97, then in 1998 — the central bank’s next move was a rate hike.
Fed Chair Jay Powell does not see history repeating.
Asked by The Wall Street Journal’s Nick Timiraos about the historical parallels and whether Powell sees the Fed’s next move as a genuinely equal-weighted decision on a rate cut or rate hike, the Fed chair was clear: the next move for the central bank will not be higher.
“I don’t think that a rate hike is … anybody’s base case at this point,” Powell said.
Powell added that, “some people feel we should stop here and that we’re at the right place and just wait. Some people feel like we should cut once or more this year and next year, but when people are writing down their estimates of policy of where it should go, it is either holding here or cutting a little or cutting more than a little.”
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3 reasons Powell sees the US economy improving in 2026
Like many forecasters on Wall Street, Fed Chair Jay Powell sees three key factors helping the US economy in 2026 — consumer spending, AI, and fiscal policy.
Asked about the Fed’s new economic forecasts which sees GDP growing 2.3% next year after 1.7% growth in 2025, Powell said, “[It’s] partly that consumer spending has held up. It’s been resilient.
“And to another degree it is … that AI spending on data centers and [spending] related to AI has been holding up business investment.”
“Fiscal policy is going to be supportive,” Powell added. “And, as I mentioned, AI spending will continue. The consumer continues to spend. So it looks like the baseline would be solid growth next year.”
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