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The Federal Open Market Committee lowered its interest rate target range by 25 basis points to 3.50%–3.75% at its December meeting. As it did at its previous two meetings, the committee judged that downside risks to employment warranted an additional cut to its interest rate target. Three FOMC members—Stephen Miran, Austan Goolsbee and Jeffrey Schmid—dissented. Miran preferred to lower the target range by 50 basis points, while Goolsbee and Schmid preferred to keep the rate steady. After the FOMC just concluded its multiyear reduction of its Treasury holdings at its October meeting, the FOMC announced at this meeting that it will initiate purchases of shorter-term Treasuries for the first time since 2022.

In the press conference following the meeting, Federal Reserve Chairman Jerome Powell noted that the data that has become available since the government shutdown suggests that the outlook for employment and inflation has not changed much since their previous meeting, with conditions in the labor market cooling while inflation remains elevated. Chairman Powell noted that he believes some of the government data could be greatly distorted due to the government shutdown, so the committee may not be heavily persuaded to change its position by new data by the January meeting.

The FOMC’s summary of economic projections, which maps out the Federal Reserve’s expectations for where interest rates may be headed in the future, signaled a similar, mixed stance compared to the September summary. Twelve Federal Reserve officials project there will be additional rate cuts across 2026, while four anticipate no additional rate cuts next year, and three predict a 25-basis-point hike. Meanwhile, the projections show that officials still expect inflation to remain elevated, averaging 2.4% in 2026, albeit less so than the 2.6% average projected in September. At the same time, the projections show officials expect real GDP to rise more in 2026 than previously anticipated.