What we covered here:
• The Federal Reserve cut interest rates Wednesday by a quarter point as expected, lowering borrowing costs for the third time this year.
• Wall Street rallied after Fed Chair Jerome Powell ruled out the need for any immediate rate hikes. Central bank officials projected just one rate cut next year.
• Today’s meeting caps off a rough year for central bank officials: They have battled stubborn inflation, a weakening labor market, more than the usual number of committee dissents, and a series of personal attacks from President Donald Trump.
Our live coverage of the December Fed decision has ended. Read more here.
The Fed just cut rates for the sixth time. Here’s why you’re not seeing much of a difference in your loans
Thanks to its latest decision on Wednesday – its final one for 2025 – the Federal Reserve has now reduced its key overnight lending rate by 1.75 percentage points since it began its rate-cutting cycle in September 2024.
Since the fed funds rate affects a ton of consumer lending and savings rates throughout the economy – directly or indirectly – it’s worth assessing whether the full magnitude of the Fed’s cuts (or at least the 150-basis-points drop prior to Wednesday’s decision) has filtered through to consumers over the past 15 months.
The answer in several instances – at least when you look at averages – is no.
Read more here.
Dow gains almost 500 points after Fed delivers third-straight rate cut
Wall Street got what it wanted on Wednesday — and it helped send the Dow soaring higher.
The Dow gained 497 points, or 1.05%. The S&P 500 gained 0.67% and closed just shy of a record high. The tech-heavy Nasdaq Composite gained 0.33%.
The Federal Reserve cut its benchmark interest rate by a quarter point, matching traders’ expectations.
Stocks moved higher in the afternoon as Fed Chair Jerome Powell outlined how central bankers are assessing the health of the labor market, progress on inflation and the outlook for interest rates.
“I don’t think that a rate hike … is anybody’s base case at this point,” Powell said. “People are writing down their estimates of policy, of where it should go. It is either holding here or cutting a little or cutting more than a little.”
“We are well positioned to wait to see how the economy evolves,” Powell said.
While the Fed’s rate cut is in response to a weakening labor market, stock investors love the prospect of lower rates — and were relieved to hear a potential rate hike is not on the table for early next year.
“No whipsaw from the Powell press conference … so investors can lean more into risk,” Krishna Guha, vice chairman at Evercore ISI, said in a note.
“And he is sounding very upbeat on productivity and growth, including AI effects along with the general step up in productivity in growth in recent years,” Guha said. “The take on productivity and growth is very risk friendly.”
Wall Street’s fear gauge, the VIX, fell 7%, reflecting the sense of calm for now.
Trump says today's rate cut “could have been doubled”
President Donald Trump dismissed Wednesday’s Federal Reserve rate cut as “rather small, noting that the quarter-point cut “could have been doubled, at least doubled.”
He made the comments during a business roundtable moments after the Fed’s decision to cut by a quarter point was announced Wednesday.
He also derided Fed Chair Jerome Powell again, calling him a “stiff” and a “deadhead.”
(It’s unclear if the president was referring to Powell’s known appreciation of the Grateful Dead: Powell was spotted at a Grateful Dead concert in 2023 and has mentioned in public discussions how fond he is of the band.)
Federal Reserve Governor Stephen Miran, who is on the Board while on temporary leave from his position as a key economic adviser to Trump, was the only person on the Fed’s rate-setting committee to vote for a half-point cut.
In an interview with Politico earlier this week, Trump replied affirmatively when asked if a litmus test for a new Fed chair would be that they lower interest rates immediately.
National Economic Council Director Kevin Hassett, who is on the president’s short list for Fed chair, has said he believes Trump will finalize his pick to replace Powell “in the next week or two.” Powell’s term as chair ends in May, but Trump has said he intends to announce his nominee for a successor much earlier.
The job market might be worse than it looks, Powell says
Job growth has slowed considerably in recent months – gains have averaged 40,000 since April – but it’s very possible that the labor market is cooling a bit more than initially thought, Fed Chair Jerome Powell said Wednesday.
“We think there is an overstatement in these numbers by 60,000 (jobs per month,” Powell said in a press conference following the Fed rate-setting committee’s latest policy meeting.
That would turn the April to September gains into losses at about 20,000 jobs per month.
But that doesn’t mean official jobs data to this point is wrong, Powell was quick to note.
“It’s very difficult to estimate job growth in real-time,” he said.
Data revisions are considered features and not bugs. When fuller information becomes available, the data is revised. In the case of employment data, the initial survey-drawn payroll figures in the jobs report are revised twice further. And then once a year, the Bureau of Labor Statistics conducts a benchmarking process where it incorporates quarterly tax data (which comes at a lag) to provide a more comprehensive look at how businesses’ employment counts changed.
The preliminary estimate is that the annual benchmark adjustment could be -911,000. That would be the largest on record; however, economists say outsized revisions happen in times of transitions (considering the policy changes around immigration, technological innovations and other seismic shifts in the economy).
Mortgage rates hover near the lowest levels of the year
Mortgage rates, which are indirectly impacted by Federal Reserve policy, are near the lowest levels of 2025.
The average 30-year fixed mortgage rate was 6.19% last week, according to Freddie Mac. The last time mortgage rates were so low was the last week of October, when the Fed announced its last interest rate cut.
A year ago, the 30-year averaged 6.69%, meaning a homebuyer today could save hundreds of dollars a year on a typical home compared to last year.
Mortgage rates track the 10-year Treasury yield, which can be influenced by the Fed’s moves. Fresh data will be released Thursday at noon.
Dow gains 600 points as Powell delivers remarks
US stocks pushed higher Wednesday afternoon as traders digested Fed Chair Jerome Powell’s remarks at an afternoon press conference.
The Dow was up 602 points, or 1.26%. The broader S&P 500 rose 0.8% and was on track to close at a record high. The tech-heavy Nasdaq Composite gained 0.48%.
Stocks surged as Powell said he doesn’t think an interest rate hike going forward is “anybody’s base case at this point.”
That was music to traders’ ears, who scooped up stocks on optimism that the Fed is not considering raising rates and is focused on future policy easing — even if it doesn’t come for a bit.
Wall Street’s fear gauge, the VIX, fell 7%, reflecting relative calm for now. Treasury yields and the US dollar index ticked lower.
The Fed cut rates by a quarter point, as expected. The decision was notable because it was accompanied by three dissents — one in favor of a half-point cut; and two in favor of no cuts at all.
“Today’s degree of division within the Fed should not come as a surprise to markets,” Seema Shah, chief global strategist at Principal Asset Management, said in an email.
“With the recent scarcity of economic data and the wide dispersion in neutral rate estimates, it is hard to imagine any level of confidence in the economy that would lead to unanimous Fed voting,” Shah said.
Powell: "It is really tariffs that are causing most of the inflation overshoot"
Inflation has ticked up this year, moving further from the Federal Reserve’s 2% annual inflation target. The latest reading of the central bank’s preferred gauge, the Personal Consumption Expenditures price index, put annual inflation at 2.8%.
Fed Chair Jerome Powell blamed President Donald Trump’s sweeping tariffs enacted throughout this year for the bulk of that.
“The story with inflation, and we are well aware that this is a story at this point, is that if you get away from tariffs, inflation is in the low 2s,” Powell told reporters on Wednesday. “It is really tariffs that are causing most of the inflation overshoot.”
Why the Fed is tackling jobs instead of inflation
The US economy has two concurrent problems that are uniquely tricky for the Federal Reserve to solve: The job market is getting worse, while inflation is rising.
The Fed’s most important tool – setting rates – can help stimulate the job market or bring prices in control. But boosting jobs can also boost inflation. And keeping prices in check can hurt employment. That’s why Fed Chair Jerome Powell called the current economic situation “challenging.”
“You have one tool,” Powell said. “You can’t do two things at once.”
So why focus so much on the job market by cutting rates when most people say they are fed up with the economy because of the affordability problems caused by inflation?
Powell agreed that high costs are the primary concern of American consumers, but current inflation isn’t the problem as much as the already-higher prices from the inflation crisis of 2022 and 2023 that folks haven’t yet adjusted to.
Although the Fed is committed to getting inflation lower, people will also feel better about their financial situation if the Fed boosts jobs – which should drive paycheck growth that can compensate for those higher prices.
“We are going to need to have some years where real compensation is higher … for people to start feeling good about the affordability issue,” Powell said. “So, we are working hard on that. We are trying to keep inflation under control, but also support the labor market and strong wages, so that people are earning enough money, and feeling economically healthy again.”
Shutdown clouds the Fed's big decision
Federal Reserve Chair Jerome Powell during his opening remarks Wednesday mentioned the government shutdown five times, noting that the delayed release of official economic data on jobs, inflation and other key metrics has made the Fed’s outlook murky.
“Very little data on inflation has been released since our meeting in October,” Powell noted.
But the Fed relies on other data, too, from third-parties. And that data, though less reliable than government statistics, confirmed the Fed’s expectations of a slowing job market and rising inflation – a tricky mix that Powell called “a challenging situation.”
“Although important federal government data for the past couple of months have yet to be released, available public and private sector data suggest that is the outlook for employment and inflation has not changed,” Powell said.
Another way that the shutdown is affecting the Fed’s calculus: It slowed down the economy in October and November. But Powell said the reopening will stimulate the economy this month and next, so the overall economy will make up the lost ground.
With the lack of data and the uncertain economic situation, Powell said the Fed is going to shift from three consecutive rate cuts to wait-and-see mode.
“It is a very challenging situation,” Powell said. “I think we are in a good place to, as I mentioned, to wait and see how the economy evolves.”
Lower inflation, stronger GDP: What the Fed thinks will happen in 2026
Federal Reserve officials have a more optimistic view of the economy in the year ahead, according to new median quarterly projections released Wednesday.
They now believe inflation-adjusted gross domestic product, one of the most comprehensive measures of economic growth, will clock in at 2.3% on an annualized basis by the end of 2026. In September they were predicting 1.8% GDP growth.
Their projections for the unemployment rate were unchanged at 4.4%, the last reported unemployment rate for September.
When it comes to price hikes, officials are predicting their preferred inflation gauge, the Personal Consumption Expenditures price index, will show prices rising at a 2.4% annual pace by the end of 2026. That’s lower than the latest reading of 2.8% in September.
Will there really be just one rate cut next year?
“The winds of change are in the air,” said Chris Rupkey, chief economist at FwdBonds. “A new Fed chair in 2026, and perhaps many more new Fed officials, means more interest rate cuts are coming next year.”
President Donald Trump has been very focused on lowering rates, repeatedly threatening to remove Fed Chair Jerome Powell for not trimming borrowing costs to the president’s liking, even though the central bank is an independent agency that operates outside of the president’s influence.
“Rate cuts are big on the Trump 2.0 economic agenda even if not listed explicitly, if for nothing else but to weigh against the slowing economy due to the import tariffs uncertainty,” Rupkey said in a note issued after the Fed’s decision.
“No one in the markets believe the Fed’s forecasts for just one rate cut in 2026, no one, as new management is coming and the next Fed Chair better align with the president’s view on rates or suffer the consequences,” he wrote.
Wall Street tries to rally as Fed cuts rates
US stocks were slightly higher Wednesday afternoon after the Federal Reserve cut its benchmark interest rate by a quarter point, matching traders’ expectations.
The Dow was up 322 points, or 0.68%. The S&P 500 rose 0.35%. The tech-heavy Nasdaq was mostly flat.
The Fed delivered its third-straight rate cut, which was widely anticipated by Wall Street.
Now traders will be attuned to Fed Chair Jerome Powell’s remarks at a press conference at 2:30 p.m. ET.
Treasury yields were little changed after the rate decision announcement. The US dollar slightly weakened against other major currencies.
Fed officials predict one rate cut next year
Federal Reserve officials penciled in one rate cut next year, according to new median quarterly projections just released. That’s the same number of cuts they predicted in September, the last time such projections were made.
But it’s important to recognize that these are indeed just predictions, and what ultimately ends up happening could change as officials learn more about how economic conditions unfold.
Three dissenting votes were cast
This month’s monetary policy meeting was especially contentious, with three Federal Reserve officials casting dissenting votes against the majority decision to cut rates by a quarter point.
This marks the first time since 2019 there have been this many dissenting votes. The dissenters were Governor Stephen Miran, who favored a half-point cut, and Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid, who were against cutting rates at all.
Federal Reserve Chair Jerome Powell has frequently said dissents are a feature, not a bug, in determining where interest rates should be and that he welcomes a diverse set of views.
At the same time, the growing number of dissents makes it harder to predict the path for monetary policy going forward. Also, next year four different regional Fed bank presidents will be voting on rate decisions than the ones this year because of the way the Fed’s rate-setting committee is structured.
Fed lowers interest rates for the third time in a row
The Federal Reserve on Wednesday lowered interest rates again in a continued effort to keep the labor market intact, despite objections from several key Fed officials who believe the central bank should be prioritizing the higher cost of living instead.
A majority of policymakers voted to lower the benchmark lending rate by a quarter point for the third consecutive time, to a range of between 3.5% to 3.75%, the lowest in more than three years.
This year’s rate cuts have been in response to mounting signs of a weakening labor market, including unusually slow job growth and higher unemployment among young people and minorities.
The Fed is faced with a K-shaped economy
A record 202.9 million people shopped online and piled into retail stores and malls during the five-day Thanksgiving holiday weekend, the National Retail Federation reported last week.
But beneath the surface, the situation isn’t as rosy and cheery as it may seem.
“Once you inflation-adjusted it, there was a modest increase in spending that was likely driven by upper-end consumers making big-ticket purchases,” Joe Brusuelas, chief economist at RSM US, told CNN.
It’s beginning to look a lot like a “K-shaped” Christmas.
The pervasive, letter-centric term has been used to describe a widening inequality dynamic where a small share of high-wealth Americans see continued gains, while a larger share of households is experiencing increased strain. New Bank of America data shows that after-tax wage growth for higher-income households was 4% in November versus 1.4% for lower-income households.
The widening inequality injects instability into the economy, and it’s happening at a time when inflation is heating up and the job market itself is becoming an “exclusive club.”
“Those on the inside, they’re doing pretty well; but for those on the outside, it’s getting harder and harder to break in,” Noah Yosif, chief economist at the American Staffing Association, told CNN Tuesday. “And if that is to continue in the long term, the inability for those folks on the outside to hold down a steady paycheck could cause more severe ramifications for the economy.”
Kevin Hassett, one of Trump's top picks to replace Powell, calls for large rate cut
Just moments before the Federal Reserve’s announcement on interest rates, National Economic Council Director Kevin Hassett said he would vote for a half-point interest rate cut if he were at this month’s meeting.
Hassett is seen as one of President Donald Trump’s top picks to replace Jerome Powell as Fed chair.
“I think if you bring stronger data than he’s been using to show people rationale for why they could have a bigger rate cut, you could get to 50 [basis] points or more,” said Wednesday in a Fox News interview, referring to Powell.
Hassett said he believes Trump will finalize his pick for the Fed head “in the next week or two.”
Stocks are mixed with less than 30 minutes until Fed rate decision
Markets were relatively quiet as traders awaited the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
The Dow gained 230 points, or 0.48%. The broader S&P 500 rose 0.1%. The tech-heavy Nasdaq Composite fell 0.2%.
More than half of companies in the Dow and S&P 500 were rising. GE Vernova (GEV) soared 14% and led the S&P 500 higher after the energy technology company raised its revenue outlook.
Elsewhere in markets, Treasury yields ticked lower, reversing course after ticking higher this morning. The US dollar weakened against other major currencies.
The action-packed part of the trading session will likely come this afternoon, when traders are digesting the Fed’s quarterly summary of economic projects as well as Fed Chair Jerome Powell’s remarks.
“Perhaps most important for markets today will be the Fed’s release of the summary of economic projections (SEP), which includes the so-called ‘dot plot’,” Jeffrey Palma, head of multi-asset solutions at Cohen & Steers, said in an email.
“Given the lack of economic data in recent months as a result of the shutdown, gauging where the committee stands on the longer-term view will be interesting,” Palma said.
Wall Street's outlook for 2026
While traders await the Federal Reserve’s interest rate decision this afternoon, many investors are already looking ahead to next year.
Wall Street is forward-looking, and big banks have published their guidance for how they see US stocks performing across 2026.
Strategists and investors are largely optimistic about the outlook for stocks, but there is a wide range of expectations for gains.
Here is a sample of Wall Street’s forecasts for the S&P 500 next year. The S&P 500 closed at 6,840.51 on Tuesday.
S&P 500 price targets for year-end 2026:
- Bank of America: 7,100 (implying a 3.8% gain from now).
- Barclays: 7,400 (implying an 8.2% gain).
- JPMorgan Chase: 7,500 (implying a 9.6% gain).
- UBS: 7,700 (implying a 12.6% gain).
- Morgan Stanley: 7,800 (implying a 14% gain).
- Deutsche Bank: 8,000 (implying a 17% gain).
The range of price targets comes after three consecutive years of strong gains for stocks. The S&P 500 gained 24% in 2023, 23% last year and is up more than 16% so far this year.
The S&P 500 has proved resilient this year, rebounding from dips and climbing higher despite uncertainty about tariffs, geopolitical tensions and affronts to the Federal Reserve’s independence.
