Federal Reserve Cuts Rates 25 Basis Points, With Two Members Voting for Steady Policy

AI Summary5 min read

TL;DR

The Federal Reserve cut interest rates by 25 basis points as expected, but the decision was notable due to significant dissent among members. Two members voted to hold rates steady while one wanted a larger cut, reflecting ongoing debate about monetary policy.

Key Takeaways

•The Fed cut its benchmark rate by 25 basis points to 3.50%-3.75%, marking the third consecutive quarter-point reduction
•Unusual public dissent among Fed members: two voted to hold rates steady while one wanted a 50 basis point cut
•Updated economic projections show slightly lower inflation forecasts and slightly higher GDP growth estimates
•Bitcoin and crypto prices showed volatility following the announcement, while U.S. stocks moved modestly higher
•Attention now turns to Fed Chair Powell's press conference for further guidance on future policy direction

Federal Reserve Chair Jerome Powell — Federal Reserve Chair Powell Holds Press Conference

What to know:

As expected, the Federal Reserve trimmed its benchmark fed funds rate range by 25 basis points on Wednesday afternoon.
Today's cut is notable given the unusually large amount of public dissension among Fed members for further monetary ease.
Two Fed members dissented from the rate cut, preferring instead to hold rates steady, while one member voted for a 50 basis point rate cut.

As expected, the Federal Reserve trimmed its benchmark fed funds rate range by 25 basis points on Wednesday afternoon.
Today's cut is notable given the unusually large amount of public dissension among Fed members for further monetary ease.
Two Fed members dissented from the rate cut, preferring instead to hold rates steady, while one member voted for a 50 basis point rate cut.

The U.S. Federal Reserve delivered a widely expected 25 basis point rate cut on Wednesday, lowering the range on its benchmark fed funds rate by 25 basis points to 3.50% to 3.75%. This marks the third straight quarter point reduction and brings short-term borrowing costs to their lowest level since 2022.

"Uncertainty about the economic outlook remains elevated," said the Fed in its policy statement. "The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months."

The Fed in its statement also noted that reserve balances had declined and said it intends to begin purchases of shorter-term Treasury paper as needed to "maintain an ample supply of reserves."

The price of bitcoin BTC$90,098.03 was volatile in the minutes following the news, but remaining around the $92,400 level. U.S. stocks moved modestly higher and the 10-year Treasury yield dipped two basis points to 4.15%

Today's rate cut is of particular note given the unusually large amount of public dissension among Fed members about the course of monetary policy. Several in recent weeks had loudly voiced their opposition ahead of time to not just today's easing, but also the central bank's 25 basis point reduction at its previous meeting in October.

Indeed two members — the Kansas City Fed's Jeffrey Schmid and the Chicago Fed's Austan Goolsbee — voted to hold policy steady. A third member, Fed Governor Stephen Miran — a recent Trump appointee — voted for a 50 basis point cut.

Economic projections update

Alongside the policy decision, this Fed meeting came with an updated set of the central bank's economic projections.

Core inflation is now seen at 3% for 2025 and 2.5% for 2026, each down 10 basis points from previous estimates. GDP growth is new expected to be 1.7% this year and 2.3% in 2026, up from previously estimated 1.6% and 1.8%, respectively.

The so-called "dot plot" is little-changed, with policymakers still seeing just one rate cut in 2026 even as markets have priced in two rate cuts next year.

Today's news comes at a moment when policymakers are still operating without several key economic data releases that remain delayed or suspended due to the U.S. government shutdown. Also at play is President Trump's continued bashing of current Fed Chair Jerome Powell alongside his search for a replacement when Powell's term as chair ends next year.

Attention now turns to Powell's post-meeting press conference at 2:30 pm ET, where listeners will try and further discern his and the Fed's thoughts on the future path of monetary policy. Prior to Powell's appearance, traders have priced in a 24% chance of another rate cut in January, per CME FedWatch.

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The Winklevoss twins praised the decision as aligning with President Trump’s push for U.S. leadership in the crypto sector.

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