US Federal Reserve Cuts Rates as Economic Outlook Remains Uncertain

The United States Federal Reserve has cut its key interest rate by a quarter of a percentage point, shifting the benchmark rate to a range of 3.5 to 3.75 per cent. This decision, taken at the central bank’s final meeting of the year, places the rate at its lowest level in three years; it comes amid heightened uncertainty surrounding the future of the world’s largest economy.

Market observers widely anticipated this move, with a reported 90 per cent probability assigned to the outcome. The Federal Open Market Committee’s latest forecasts indicate that only one further rate cut should be expected in 2026, falling short of the two reductions which were previously priced in by financial markets.

The Federal Reserve’s statement indicated that continued uncertainty persists around economic conditions. Policymakers are seeking to balance risks in two key areas: a potential weakening of the labour market, and renewed inflation pressure, particularly if tariffs on imported goods drive up prices.

During the meeting, internal divisions emerged. Three committee members dissented from the majority view. Stephen Miran, a close political ally of President Trump and known inflation ‘dove’, supported a larger half-point cut, whilst Austan Goolsbee and Jeffery Schmid voted to leave rates unchanged.

Complicating the Federal Reserve’s assessment has been the recent record-length government shutdown, which has delayed the release of crucial data on employment and inflation; these figures are not due for publication until the following week. Fed Chair Jerome Powell stated that the committee’s actions were based on such available evidence as pointed to a less dynamic, softer labour market.

The future leadership of the central bank is also a factor in current uncertainty. With the imminent end of Powell’s term as chairman, the US President is expected to name a successor early in the new year, with speculation focusing on a candidate closely aligned with the current administration. Powell confirmed his commitment to ensuring stability during the remaining period of his tenure.