Fed Rate Cut December 2025: 0.25% Cut & 2026 Outlook

At the FOMC meeting on December 9-10, 2025, the Fed unanimously voted 9 to 3 to reduce the policy interest rate by 0.25% to 3.50-3.75%, which is the third consecutive reduction in 2025, as previously expected by the Kasikorn Research Center. The important points are as follows:

• The Fed committee’s view is more nuanced. Reflecting the increasing uncertainty regarding the direction of monetary policy in 2026, 9 votes supported the policy interest rate cut to 0.25%, reflecting the belief that the economy is starting to slow down. Employment is weakening and the unemployment rate increased Even though inflation is still high Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid voted against cutting interest rates. Fed Governor Stephen Miran has proposed cutting interest rates by as much as 0.50%, making the vote the first time since 2019 that three Fed directors have disagreed.
• The Fed will resume buying government bonds. After announcing a halt to the downsizing of the balance sheet (QT) at the FOMC meeting in October 2025, at this meeting The Fed said it will begin buying $40 billion in government bonds on Dec. 12, 2025, to provide liquidity in financial markets and the economy. It also helps the Fed to effectively control the interest rate framework in the system.
• The Fed signals that further rate cuts remain uncertain. It still expects one interest rate cut at the rate of 0.25% in 2026 (Figure 1). The Fed is likely to delay cutting interest rates to wait for more clarity on the direction of the labor market and inflation. In addition, the economic and inflation forecasts released at this meeting have been revised up. and lowered the inflation forecast for 2025-2026 while maintaining the unemployment rate forecast unchanged compared to the previous meeting.
• After the announcement of the results of the FOMC meeting, the US stock market rose, and long-term bond yields fell. and the US dollar weakened after Fed Chairman Jerome Powell signaled he was more dovish, emphasizing increased risks in the labor market. while reducing the weight of inflation concerns. It is viewed that the impact of the import tax increase is one-time in nature. And inflation is likely to reach its highest point in the first quarter of 2026 if there is no additional round of import tax increases.

In 2026, the Kasikorn Research Center estimates that the Fed is likely to gradually reduce interest rates approximately 2-3 more times, more than the median of the Fed signaling only one interest rate cut, and in line with the market that expects the Fed to cut interest rates approximately 2 times next year (Figure 2). The Kasikorn Research Center maintains its view that the US economy in 2026 is likely to expand at a slower rate than this year. Although IT investment remains strong and wealth results from a improving stock market will help support the economy amid pressure from higher tax measures. But signs of weakness are starting to appear in both the labor market and the manufacturing sector. Even though investing in AI will help raise productivity, But it may reduce employment. Meanwhile, consumer spending tends to slow down. especially among low- and middle-income households.

However, the pace of future interest rate cuts will depend heavily on economic and inflation data. In addition, the end of Fed Chairman Jerome Powell’s term in May 2026 is another important factor that the market must keep an eye on. President Donald Trump is likely to nominate a new Fed chair who has a more accommodative stance on monetary policy.