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Will the Fed Cut Rates Again in December? It’s Complicated
By Liliana Hall MONEY RESEARCH COLLECTIVE
For everyday Americans, lower rates generally translate into cheaper borrowing, offering modest relief on credit cards, auto loans and other variable-rate debt as households head into the new year.
The Federal Reserve’s last policy meeting of the year is scheduled for Tuesday and Wednesday, and investors are watching closely to see whether members will deliver another cut to short-term interest rates. After holding rates steady for nearly a year, the Fed lowered rates by 25 basis points at each of its past two meetings, bringing the target range to 3.75% to 4%.
This month’s decision, however, is less predictable.
A 43-day government shutdown, which ended Nov. 13, halted the collection of key economic data — meaning October’s inflation and employment reports were never collected and therefore never released. Because data collection didn’t resume until mid-November, the first full set of figures won’t land until after the meeting (with the jobs report expected Dec. 16 and inflation on Dec. 18), adding another layer of uncertainty, since the Fed will be deciding what to do with less visibility into the economy than usual.
A December cut would bring the federal funds rate to a range of 3.5% to 3.75%, marking the Fed’s third adjustment this year. For everyday Americans, lower rates generally translate into cheaper borrowing, offering modest relief on credit cards, auto loans and other variable-rate debt as households head into the new year.
The Fed’s core job is to maintain financial stability and guide monetary policy to support maximum employment and stable prices (aka inflation). Its long-term goal is to keep inflation around 2%, a level the central bank says helps anchor consumer expectations and keeps price increases from spiraling.
But inflation has hovered above that target for much of the past year. That’s why the Fed held rates near historic highs for almost a year, and why it only recently began easing with two quarter-point cuts. The latest consumer price index reading — September’s, before the shutdown disrupted October’s data — showed prices rising 3% annually, up from 2.9% in August and 2.7% in July, according to the Bureau of Labor Statistics.
Before the shutdown ended, Federal Reserve Chair Jerome Powell acknowledged that the lack of government data complicated the December decision.
“We’re going to collect every scrap of data we can find, evaluate it and think carefully about it. And that’s our job — that’s what we’re going to do,” Powell said in his post-meeting remarks on Oct. 29.
He went on to say that the data gap could convince the committee to delay drastic action.
“What do you do if you’re driving in the fog? You slow down,” he said.
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View RatesWill the Fed lower rates this month?
With two rate cuts already in the books this year, attention has shifted to whether the Fed will close out 2025 with a third cut. Wall Street traders see another interest rate cut as highly likely, though not guaranteed.
As of press time, the probability of a quarter-point cut at next week’s meeting was about 89%, up from around 40% earlier this month, according to the CME Group’s FedWatch tool.
Morningstar reports that expectations for another cut rose after New York Fed President John Williams signaled recently that additional easing may be warranted.
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” Williams said in a speech on Nov. 21. “Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral.”
In addition to navigating a lack of data, the Fed is also contending with divisions among its policymakers.
Investors are paying close attention to the Fed’s September dot plot, which shows how each Federal Open Market Committee member expects interest rates to move. It’s not an official forecast but a look into individual policy views that helps illustrate consensus (or disagreement) among the committee.
The June dot plot showed a consensus among Fed officials for two cuts this year. But September’s release signaled a shift — partly because it was the first meeting in which Stephen Miran, appointed by President Donald Trump in September, voted following his narrow Senate confirmation. Miran has historically leaned dovish in his public commentary, advocating for quicker rate cuts, which slightly changed the committee’s balance.
The updated dot plot revealed a wide range of views among policymakers for 2025. Most still anticipate moderate easing, but two officials diverged sharply. One favored keeping rates at the previous 4.25% to 4.5% range — a “soft dissent.” Another — likely Miran — projected a much steeper path, with rates falling to roughly 2.75%–3% by year-end.
Miran told Bloomberg on Nov. 21 that economic data since the last FOMC meeting should push the Fed in a “dovish direction.”
Trump’s pressure campaign has added another layer of political scrutiny. He has repeatedly criticized Powell, previously calling him a “numbskull,” for not cutting rates fast enough. The chairman’s term ends in May; over the weekend, Trump signaled that he’s settled on Powell’s successor.
The publicly reported shortlist includes Fed governors Christopher Waller and Michelle Bowman (both Trump appointees), former Fed governor Kevin Warsh, National Economic Council director Kevin Hassett and BlackRock global fixed income chief Rick Rieder.
Hassett is widely viewed as the likely frontrunner to succeed Powell. After Trump publicly floated him as a”potential Fed chair” on Tuesday, Hassett told CBS News — when asked if it’s a job he’d want — “I’d like to do what the President needs me to do.”
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Liliana Hall is an Austin-based reporter for Money, where she covers a range of topics, including financial news, policy, banking, investing, passive income, financial planning and student loan debt. Passionate about accessibility and financial literacy, she’s dedicated to helping readers navigate the complexities of money management and feel empowered to make informed decisions about their financial futures. Previously, Liliana covered all angles of personal finance as a writer and editor at CreditCards.com, Bankrate and CNET. Before she ever wrote about money, she worked in a handful of newsrooms across Austin, Texas, covering everything from the Texas Legislature to SXSW and the 2019 Men’s NCAA Swimming and Diving Championships. Her work has been featured in The Daily Texan, Austin Chronicle and KUT. A Texas native, Liliana graduated from the University of Texas at Austin with a bachelor’s degree in Journalism. When she’s offline, you can probably find her paddle boarding on Lady Bird Lake, riding her moped around town or reading for her book club.