Federal Reserve cuts rates to three-year low

The Federal Reserve just cut its benchmark interest rate by 0.25 percentage points, bringing the federal funds target range down to 3.5%–3.75%, the lowest level in more than three years. This is the Fed’s third straight cut since September, totaling 0.75 percentage points of easing this year.​

What the Fed did

The Federal Open Market Committee voted to lower the federal funds rate from 3.75%–4.0% to 3.5%–3.75%. That puts the rate at its lowest level since late 2022, reversing part of the aggressive tightening cycle that followed the pandemic.​

The decision was not unanimous: nine policymakers backed the quarter‑point cut, while three dissented, with two wanting no change and one favoring a larger half‑point cut. This is the most internal disagreement on a rate move in about six years, underscoring how divided officials are over the outlook.​

Why the Fed is cutting

Fed officials cited a cooling labor market and slower job gains, alongside inflation that remains above the 2% target but has eased from earlier peaks. Private payroll data showing job losses in November added to concerns about economic momentum.​

At the same time, the Fed is acting without some usual government statistics because of a recent federal shutdown, so it is relying more heavily on private and partial data. Policymakers framed the move as insurance to support employment while still aiming to bring inflation gradually back to 2%.​

What it means for borrowing and saving

A lower federal funds rate typically feeds through to other borrowing costs, making it somewhat cheaper over time to use credit cards, take out auto loans, and secure new variable‑rate mortgages or refinance certain existing loans. Many savings accounts and short‑term CDs eventually respond in the opposite direction, with banks trimming the interest they pay on deposits.​

The impact is not instantaneous or one‑for‑one: markets and lenders had already priced in some of this move, so changes to consumer rates may be modest rather than dramatic. Still, compared with a few months ago, overall borrowing conditions are now meaningfully looser.​

Fed outlook from here

In new projections released with the decision, Fed officials signaled they currently expect only one additional rate cut in 2026, suggesting they see policy as getting close to an appropriate level if the economy evolves as forecast. They project inflation (on the Fed’s preferred PCE measure) to ease further next year while unemployment holds roughly around its current mid‑4% level.​

Chair Jerome Powell indicated the committee now feels better “positioned” and may slow or pause cuts to see how the economy responds, reinforcing the idea of a more cautious path ahead. Markets, however, will continue to adjust expectations as new data on growth, jobs, and inflation arrive.​

Key numbers at a glance