Fed Delivers Third Rate Cut—Is a Recession Now Inevitable?
The Federal Reserve’s third rate cut in 2025 has lowered the federal funds rate to 3.5%–3.75%. However, it has increased one thing: concerns about a potential recession.
Analysts warn that the current trends expose weaknesses in the US economy, with many expecting market turbulence ahead.
Experts See Warning Signs Behind Fed’s Latest Cut
The Federal Reserve cut interest rates again yesterday, marking the third reduction following similar moves in September and October. The latest decision brings the federal funds rate to its lowest level since November 2022.
In its statement, the Fed noted that overall economic activity continues to grow at a moderate pace. However, policymakers acknowledged clear signs of cooling in the labor market, including slower hiring and a slight uptick in unemployment.
“Inflation has moved up since earlier in the year and remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months,” the press release read.
Rate cuts are typically welcomed by stock and crypto markets, which tend to rally on cheaper borrowing costs. But not everyone is celebrating. Some market observers interpret the move as a warning signal.
Economist Claudia Sahm also cautioned that investors should only hope for additional rate cuts if they are willing to accept the possibility of a recession. The FOMC’s dot plot signaled just one additional cut in 2026. Notably, seven of the nineteen officials anticipate no further rate cuts in 2026.
“If the [Jerome] Powell Fed ends up doing a lot more cuts….then we probably don’t have a good economy. Be careful what you wish for,” Sahm told Fortune.
