The Federal Reserve faces a split December 2025 decision with Jerome Powell’s guidance key as officials weigh a likely rate cut amid missing data, inflation risks and a cooling labour market.
The Federal Reserve meets for its final policymaking session of 2025 on December and investors are braced for a closely contested decision that could again trim borrowing costs. Markets have largely priced in a quarter-percentage-point cut but deep divisions among officials and missing government data mean the outcome and the message that follows remain in doubt.
Across trading desks, the base case is familiar: a 25-basis-point reduction that would mark the third cut of the year, moving the federal funds rate closer to the mid-3 per cent range. Futures markets and polling of economists put the odds of such a move very high. But that apparent consensus masks tensions inside the Federal Open Market Committee.
Some policymakers are increasingly worried that service-sector inflation and sticky price pressures still call for restraint; others argue that a cooling labour market and rising layoffs make further easing necessary to support employment.
Complicating the Fed’s calculus is a “data fog” created by this year’s US government shutdown. Key inputs including more recent readings on employment and inflation were delayed, forcing officials to rely on partial indicators and judgement rather than the usual full set of statistics. That absence of fresh, timely data is a central reason for the committee’s split: without crisp readings, the balance between guarding against a resurgence in inflation and propping a weakening jobs market is harder to strike.
What the Fed says and how Chair Jerome Powell frames the outlook at his post-decision press conference will matter more than the mechanical size of the move. Even if the committee approves a 25-basis-point cut, markets will look for tone whether the Fed describes the easing as limited and conditional or signals a readiness to move further should labour weakness persist. That “hawkish cut” scenario, a cut paired with language that limits market expectations for subsequent reductions has been flagged as one plausible outcome.
But the Fed is far from unified
The stakes go beyond Wall Street. A cut would lower short-term borrowing costs, easing pressure on mortgages, business loans and corporate financing; it would also tend to weaken the dollar and loosen global financial conditions, with knock-on effects for emerging markets. But policymakers know that cutting too far or too quickly risks reigniting inflation, the very problem that prompted aggressive tightening earlier in the cycle.
Analysts and economists polled ahead of the meeting largely expect the committee to opt for the reduction, but many also expect dissent on the ballot. That split and the Fed’s explanation of its path for 2026 in the accompanying projections and Powell’s comments will be watched for clues on whether December is truly the last cut for a while or the opening of a more extended easing cycle.
Absent the delayed data, the Fed’s signal may matter more than the rate itself: investors will judge whether the committee has enough conviction to pivot further, or whether policymakers intend to move cautiously until clearer evidence arrives.
As markets prepare for the announcement and Powell’s remarks, the Fed faces a classic central-bank dilemma: act now to shore up a softening labour market, or hold until the inflation picture is unmistakable. With policymakers divided and data incomplete, the December decision may tell us as much about the committee’s tolerance for risk as it does about the near-term direction of US policy.
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