Author: Chloe, ChainCatcher
The last interest rate meeting of the year has concluded, with the Federal Reserve announcing a 25 basis point reduction in the benchmark interest rate to a range of 3.50%-3.75%, marking the third consecutive meeting of rate cuts. Since September, the Federal Reserve has cumulatively lowered rates by 75 basis points. This decision was passed with a 9:3 voting ratio, with two dissenting members supporting maintaining the rate unchanged and one supporting a 50 basis point cut.
At the same time, the Federal Reserve has initiated a Treasury bill program to maintain sufficient reserves. According to Reuters, this round of technical purchases will begin on December 12, with the first round of Treasury bill purchases amounting to approximately $40 billion.
The Federal Reserve has just decided to end its balance sheet reduction in early December and has quickly shifted to a slight expansion of the balance sheet to address recent pressures in the repurchase market and fluctuations in the short-term financing market.
Powell Rules Out Rate Hikes, Emphasizes Core Mission to Maintain 2% Inflation Target
According to the policy statement, economic activity is growing moderately, but the labor market is showing signs of weakness, with rising unemployment and still high inflation levels. To achieve maximum employment and a 2% inflation target, the Federal Reserve has lowered the interest rate range and will decide on future adjustments based on the latest data and risk assessments. The committee will continue to monitor the labor market, inflation expectations, and domestic and international financial dynamics. Additionally, to ensure sufficient reserves, a short-term Treasury bond purchase program will be initiated.
On the operational level, the Board of Governors of the Federal Reserve unanimously agreed to adjust the relevant interest rates and instructed to conduct open market operations, including repurchase reinvestment, to support policy implementation.
At the press conference, Powell also stated that the reason for this rate cut is that inflation still has upward pressure, while the labor market is starting to weaken, causing a tug-of-war between the two major goals. He emphasized that there is never a zero-risk policy, and the current interest rate has returned to a "broadly neutral range," with the policy stance being "quite appropriate," allowing officials to observe data more patiently before deciding on the next steps, rather than pre-setting a direction. He hinted that the downside risks to the labor market are greater than those for inflation, and that the inflation above the target is mostly driven by tariffs and is temporary.
Powell ruled out the possibility of rate hikes and reiterated that the core mission of the Federal Reserve is to "maintain the 2% inflation target" and "support maximum employment," with all policy adjustments being based on this.
In terms of economic outlook, Powell pointed out that consumer spending and business investment are robust, the housing market is weak, but overall momentum is strong. The recent short government shutdown has impacted this quarter's economy, but it is expected to partially ease next quarter.
According to the Federal Reserve's latest economic projections (SEP), the GDP growth estimates for this year and next year have been raised to 1.7% and 2.3%, respectively. The growth outlook for next year is more optimistic, primarily due to strong consumer spending, along with investments in AI-related data centers and equipment boosting corporate capital expenditures. Excluding the impact of the government shutdown, next year's GDP growth is expected to be around 2.1%.
The "dot plot" released after the meeting shows that most policymakers expect another 25 basis point rate cut in 2026, consistent with the September forecast. However, Powell emphasized that this does not imply that the next step will definitely be a rate cut or a halt to rate cuts, but rather that the Federal Reserve's next move will depend entirely on economic performance, not a pre-set direction.
Divisions Within the Federal Reserve Widen, Trump Says Rate Cut Is Too Small
However, this decision highlights the unusual divisions within the Federal Reserve. The nine members supporting the action included Chair Powell and Vice Chair John Williams; the dissenters included Stephen Milan (leaning towards a 50 basis point cut), as well as Austin Goolsbee and Jeffrey Schmid (leaning towards maintaining the current rate). This is the first occurrence of such a three-vote dissent since 2019.
Moreover, not only the two officials mentioned in the statement who opposed the rate cut, but other decision-makers also showed hesitation: only four regional Federal Reserve banks proposed applications to lower the discount rate (the rate charged by the Federal Reserve for emergency loans to commercial banks), and six decision-makers preferred to keep the interest rate at a range of 3.75%-4% by the end of next year in their economic forecasts.
"Federal Reserve mouthpiece" Nick Timiraos analyzed that there is a serious split among officials on whether inflation or the labor market should be a greater concern, which may depend on how Powell proceeds. Powell's term will end in May next year, and he has only three more interest rate-setting meetings left.
After the decision was announced, U.S. stocks and bond markets rose simultaneously, with the Dow Jones Industrial Average gaining nearly 500 points, U.S. Treasury yields and the dollar index weakening, and the interest rate swap market estimating another 50 basis point cut next year. However, the cryptocurrency market reacted mildly, with Bitcoin maintaining in the $90,000-$91,000 range and Ethereum fluctuating in the $3,200-$3,300 range. The cryptocurrency market's fear and greed index dropped from 30 to 29.
U.S. President Trump commented that the rate cut was too small and could have been larger.
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