Why The US Fed Cut Rates Again: Simple Breakdown Of The December 2025 Decision
US Fed cuts interest rates to 3.50%–3.75% in December 2025. Here is the full, simple explanation of what this rate cut means, why the Fed acted, and how it may affect the economy.
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The US Federal Reserve lowered its key interest rate to a range of 3.50%–3.75% on December 10, 2025. This was a 25 bps cut and came as the economy showed high inflation mixed with weaker job numbers. The Fed said the decision was needed to balance price control with support for a slowing labour market. This rate cut also became the third straight reduction since September 2025, showing how the central bank now shifts toward easier financial conditions.
US Fed Brings Rates Down To 3.50%–3.75% As Inflation Stays High
The committee stated that risks in the economy changed, so lowering the target range was necessary. Inflation remained elevated, mainly because goods prices stayed high due to earlier tariffs. Powell explained that even though they had been holding rates steady for months before September, recent data suggested the need to push borrowing costs lower. This cut follows a long pause that lasted from December 2024 until the first rate cut in September 2025.
US Job Market Weakens, Forcing Fed To Adjust Policy Path
Labour data released for November showed the unemployment rate rising to 4.4% in September 2025 while job additions stayed weaker than usual. Even during the federal government shutdown, only 119,000 jobs were created. This softer trend pushed the Fed to rethink its risk direction. Powell earlier said a December cut was not guaranteed, but the slowdown in hiring made the committee lean toward support for workers and companies.
Fed Balances Inflation Pressure And Employment Targets
The central bank aims for stable prices as well as a strong labour environment. Both goals became harder this year because inflation picked up again, yet some parts of the economy slowed. Housing felt pressure, business spending held steady, and consumer demand stayed moderate. The committee said it will continue reviewing incoming data instead of depending only on past guidance. This means future cuts or pauses will depend on how prices and jobs behave in coming months.
October And December Moves Show A Clear Softening Pattern
Just weeks earlier, on October 29, the Fed cut rates from 3.75%–4.00%. That was the second cut of the year and also came during high inflation and the government shutdown. Powell noted the rise in goods inflation that month was tied to tariff effects. Markets expected another cut in December, which is what happened. But Powell still warns that any next cut in 2026 will depend heavily on economic signals rather than fixed plans.
What This Rate Cut Means For Global And US Markets
Analysts say the real impact lies not only in the rate cut but also in the Fed’s strong liquidity push through treasury bill purchases. The Fed surprised markets by committing nearly USD 40 billion in short-term securities, boosting liquidity immediately. This supported market confidence and stabilised short-term yields. Long-term yields, however, stayed higher because investors remain uncertain about future policy and the change in Fed leadership expected in 2026.
How India And Emerging Markets May Feel The Impact
For countries like India, a steady Fed path lowers external risk. But weaker clarity on future cuts may keep the rupee under some pressure and slow foreign investment. India’s growth outlook stays strong, yet global headwinds and policy shifts in the US still affect credit, trade and market flows. Many analysts expect gold prices to stay strong through this phase as investors look for safety while waiting for the next Fed signal.