FX.co ★ Fed Expected to Cut Rates for 3rd Time

The Federal Reserve is anticipated to reduce the federal funds rate by 25 basis points to a range of 3.5% to 3.75% in December 2025. This move follows similar rate cuts in September and October and would set borrowing costs at their lowest since 2022. The decision is influenced by significant indications of a swiftly cooling labor market, even though policymakers are currently operating without several critical government data releases due to the ongoing shutdown. Market attention will also turn to the updated dot plot and officials’ interest-rate forecasts for 2026, which are expected to reveal continued disagreements regarding the necessity of further easing in light of enduring inflation. In September, the Fed had projected only one rate reduction in 2026. However, traders now anticipate approximately two additional quarter-point cuts next year, likely occurring in June and September.