The Federal Reserve cut interest rates by 25 basis points as expected, and policymakers still anticipate one more rate cut next year.
The Federal Reserve has cut interest rates for the third time this year by 25 basis points as expected. On December 10, Eastern Time, the Federal Reserve announced it would lower the target range for the federal funds rate to 3.50%-3.75%, aligning with widespread market expectations.
Previously, there were differences within the Federal Reserve regarding the impact of tariff policies on inflation and whether to further lower interest rates in December, but the deterioration of labor market data has increased expectations for rate cuts.
The Federal Open Market Committee of the Federal Reserve stated in a declaration that U.S. economic activity is expanding moderately, but job creation has slowed, the unemployment rate rose in September, inflation remains elevated to some extent, and the economic outlook still faces significant uncertainty, with downside risks in the labor market having increased in recent months.
Investor focus has shifted to the subsequent policy path. The dot plot indicates that policymakers still expect one rate cut next year, with inflation expected to ease to around 2.4% by the end of next year.
Federal Reserve Chair Powell stated in a subsequent press conference that economic activity has continued to expand at a moderate pace since the October meeting, the labor market situation seems to be gradually cooling, and inflation levels remain slightly elevated; in contrast, activity in the real estate sector remains weak. The impact of the federal government's temporary shutdown is expected to be offset in the next quarter.
Meanwhile, the new Federal Reserve chair nominee is under close scrutiny. Powell's term will expire in May next year. At that time, he may continue to serve on the Federal Reserve Board as a governor. President Trump has publicly criticized him multiple times for acting too slowly on interest rate cuts, hindering the U.S. economy.
The White House began final interviews with all candidates this week and plans to announce the decision in early 2026. Previously, Trump hinted several times that National Economic Council Director Hassett is his choice. Other popular candidates include Federal Reserve Governor Waller and Vice Chair Bowman, who is responsible for regulatory affairs.
The 63-year-old Hassett holds a Ph.D. in economics from the University of Pennsylvania and has served as a senior economist at the Federal Reserve, a professor at Columbia University, and led the design of the (Tax Cuts and Jobs Act) during Trump's first term, also participating in tariff policy formulation.
Hassett advocates for monetary easing to stimulate growth, tends to support tax cuts, fiscal easing, deregulation, and low interest rates, and has stated that if he were at the helm, he would cut rates more aggressively. His economic views are highly aligned with Trump. Some analysts point out that if Hassett is ultimately elected, he may lower the benchmark federal funds rate from the current 3.75–4% to well below 3%.
On December 9, when asked by the media whether he would be loyal to Trump or his independent economic judgment if he led the Federal Reserve, Hassett said that the most important responsibility of the Fed chair is to focus on economic data and avoid getting involved in politics.
However, informed sources indicate that before the final results are announced, Trump may still change his mind temporarily, as he said earlier this year when responding to questions about tariffs, he is a 'very flexible person.'
