As widely anticipated by market watchers, the US Federal Reserve’s Federal Open Market Committee (FOMC) has cut interest rates by 25 basis points, bringing the target range to 3.50%-3.75%, reports Editor, Sue Whitbread.
The move comes amid a complex economic backdrop, with the Fed navigating its twin mandate: controlling inflation while supporting employment.
The decision is likely to be overshadowed by Chair Powell’s remarks expected later this evening UK time, which markets will scrutinise for clues about the Fed’s future trajectory. Recent weeks have highlighted internal divisions among policymakers as they weigh competing pressures: inflation remains above the 2% target, partly driven by tariff-related price increases, while indicators of labour market weakness and slowing sectoral growth are prompting caution.
Delayed economic data due to the US government shutdown has further complicated the picture. Private metrics, such as the ADP payroll figures, have gained heightened significance, showing a contraction of 32,000 private-sector jobs in November, while overall unemployment ticked up to 4.4%. This data has intensified scrutiny on the Fed’s policy priorities and the potential efficacy of further rate cuts in stimulating the labour market.
Investment experts have been sharing their reaction to this latest Fed interest rate cut with us as follows:
Garry White, Chief Investment Commentator at Charles Stanley, comments: “The Fed’s 25-basis-point cut in interest rates is unsurprising. Recent data from the US suggests hiring has weakened, layoffs are rising, and consumer affordability is strained. Tariff-related price increases have kept inflation slightly above the central bank’s 2% target, but its dual mandate is to promote maximum employment as well as stable prices. It is the jobs market that is now in its focus as inflation has been brought back from runaway levels.”
Commenting on today’s FOMC decision, Max Stainton, senior global macro strategist at Fidelity International, said: “The US Federal Reserve cut rates by 25 basis points (bps) as expected, taking the Fed funds target range down to 3.5-3.75 per cent. However, the accompanying statement, which removed the forward guidance on additional cuts, alongside two hawkish dissents, gave this cut a hawkish flavour. However, the reintroduction of quantitative easing (QE) targeting $40bn bill purchases a month, alongside a set of dots which retained a cut next year and the year after, suggests there is still a large bulk of the FOMC who see interest rates as being able to fall further before hitting a neutral resting point.
“Looking ahead, we expect the market path of interest rates to be increasingly determined by speculation surrounding President Trump’s pick to be the new Chair, rather than the incoming data. In our base case scenario for 2026, we expect a non-traditional dovish Fed Chair to be appointed by the Trump administration, whose main objective is to lower interest rates further. This dynamic is likely to make the forward interest rate curve increasingly kinked around when the new Fed Chair will start in May 2026, with a new rate-cutting cycle getting priced in if this base case scenario comes through. While such a scenario has started to get priced by markets, there is potential for this to extend at both the front and back end of the curves, with a non-traditional dove as Chair an underappreciated risk to the back end.”
Lindsay James, investment strategist at Quilter said: “Following all the speculation and expectation, the Federal Reserve has once again cut rates. The recent period of murky, and often missing, data made the job of the Committee incredibly challenging, leaving private data such as the ADP payroll figures carrying much more weight. This data was not kind in November, with it showing 32,000 private sector jobs were cut in that month, and despite a positive jobs report in from September when it was belatedly released last month, it came marred by downward revisions for August and an overall uptick in unemployment to 4.4%. However, there is plenty of evidence to suggest that immigration policy – not Fed policy – is a far greater driver of the apparent slowdown in the jobs market, and so imply that a rate cut – or indeed several – will have limited effect in this area of the economy.
“With US CPI having risen from 2.3% in April to 3% in September and pressures building in 2026 as fiscal stimulus begins to kick in, voting members are increasingly sounding more hawkish. Donald Trump clearly wants to run the economy hot in the lead up to the mid-terms with earlier expectations for deeper rate cuts in 2026 having been tempered in recent weeks. Some of this shift in tone could be a deliberate counter to the dovish tones coming from Fed Chair candidates; the current ‘favourite’ Kevin Hassett has said there is ‘plenty of room’ to cut rates. But if successful, he may find that building consensus involves bridging the gap with other voting members who have become deliberately more hawkish in order to minimise the extent of cuts ahead of time.
“With a flood of data due after the Fed decision, a hold at this meeting would have been understandable. A move to cut suggests not only that the committee are genuinely concerned by the labour market but also potentially about the wider health of the US economy, with a slowdown in specific sectors such as construction, casual dining and freight risking spillover effects elsewhere. With such high expectations for strong earnings growth as we move towards 2026, investors should continue to beware that the US economy is not in fact firing on all cylinders, underlining the need to tread carefully.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) isn’t surprised by the move, saying: “The Fed cutting rates isn’t a surprise to markets, as they assigned roughly a 90% probability to this outcome. While the bar for deep cuts in the near term is relatively high, we think the central bank is likely to continue to lower rates in 2026, as the job market is cooling. An uncertainty is the next Fed chair, who will have the difficult task to maintain credibility while leaning on the dovish side.”
“The bigger picture remains one where 2026 begins on firmer ground than many feared. The recession that many expected in 2025 never materialised. Fiscal stimulus, falling interest rates and steady policy support have helped markets recover even as global politics and trade remain complex. The monetary and fiscal policy mix looks more expansionary. The Fed has now begun cutting rates, which is easing financial conditions and boosting asset prices. This is creating a ‘wealth effect’, giving consumers more confidence to spend. In the run-up to the midterms, Washington is also cutting taxes and deregulating.”
“Elsewhere, London is still focused on austerity, while Berlin has shifted to stimulus by boosting defence and infrastructure spending. Beijing is sustaining demand through state-backed measures, while Tokyo is coming up with a stimulus package. This monetary and fiscal support should keep growth positive in 2026, but moderately so. In the Eurozone, inflation is near the European Central Bank’s 2% target. In the US and the UK, inflation remains stickier, but weaker labour markets should ease it. We expect both the Fed and Bank of England to keep cutting rates in 2026, though less than the ECB, and with the Fed settling on a lower terminal rate than the BoE.”
“The challenge is that markets have already priced in much of these positive news. US equities reflect solid earnings, led by tech. Other equity markets are more attractively valued, but earnings growth is weaker. Corporate bonds look expensive, gold has surged, and government bonds can provide less reliable protection than before. A more predictable rhythm of US-China negotiations and reduced trade uncertainty have also contributed to the recovery.”
“But another challenge is that, beneath the surface, the world is shifting to a more fragmented multi-polar landscape. This regional fragmentation is fuelling competition for key technologies and supplies, while ageing populations and rising sovereign debt keep funding costs higher than before. These forces imply wider divergence in outcomes and less predictable market relationships, making differentiation across asset classes and geographies more important than ever.”
George Lagarias, Chief Economist, Forvis Mazars said: “Seldom has a rate cut, which was not priced in a month ago, been met with so much scepticism. Most investors are usually very happy not to fight the Fed. But how do portfolios position when the Fed is fighting itself?
“The rate cut yesterday was fully expected, as were some differentiating voices. But three voting dissents and more silent opposition, evidenced by the “dot plot”, spell division for the world’s most important central bank. Markets, which rallied early this year, were looking for a catalyst to break new highs. A house divided at one of the world’s most important institutions is certainly no cause for celebration, and could even lead to a risk-off event.”
Capital.com’s Daniela Hathorn said: “The Federal Reserve delivered a widely expected 25bps rate cut at its December meeting, but the vote split more slightly more dovish than expected, with a 9-3 vote, only two dissenters to cutting, with one member voting for a larger 50bps cut, highlighting one of the most divided FOMC sessions in years. While policymakers agreed on the need to ease modestly amid patchy post-shutdown data and signs of slowing momentum, the updated communication stressed caution. The Fed made clear that this cut does not mark the start of an aggressive easing cycle, with emphasis on the fact that future moves will depend heavily on incoming inflation and labour-market data. The tone reflected a committee struggling to balance weakening economic indicators with a desire to avoid over-easing before inflation is fully anchored. The updated projections kept the 2026 year-end Fed rate unchanged at 2.4%, a metric that was being closely watched.
“Markets initially reacted positively to the dovish tilt. Equities pushed higher and short-term Treasury yields fell as traders interpreted the vote split as opening the door to additional easing in early 2026. The U.S. dollar softened as well, though not dramatically, given lingering uncertainty over the Fed’s long-run bias. Longer-dated yields held steadier, signalling that investors are not fully convinced of a smooth downward rate path and remain sensitive to potential inflation surprises. Overall, markets have embraced the cut, but with cautious optimism, acknowledging the policy shift while recognising that a fractured committee and data-dependent forward guidance could keep volatility elevated into the New Year.”
Richard Flynn, Managing Director at Charles Schwab UK comments: “The Federal Reserve delivered on market expectations, cutting rates by 25 basis points to a target range of 3.50%-3.75%. This move reflects growing concern over a softening labour market and the need to provide incremental support to the economy, even as inflation remains above the 2% target.
“This meeting carried added significance, coming after weeks of delayed economic data due to the government shutdown and amid news that the President has finalised a successor for the Fed chair.
“By acting pre-emptively, the Fed is signalling caution in the face of mounting downside risks, particularly as global growth remains sluggish and policy uncertainty persists.
“For investors, this is a measured adjustment rather than a dramatic pivot. While the cut could offer near-term support for risk assets, and potentially fuel a seasonal ‘Santa rally’, volatility is likely to remain elevated as markets assess the implications for future policy and the broader economic outlook.”
Gerrit Smit, lead portfolio manager of the Stonehage Fleming Global Best Ideas Equity fund said: ‘The Fed stays its steady course to support the economy. The 0.25% Fed cut is the right step at the right time with employment looking reasonably healthy, and the Fed retaining good firepower for later.’
Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments said: “With this 25bp cut widely expected, the markets are focused on the Fed’s guidance for 2026 and beyond. The Fed dots continued to show a single rate cut in 2026, but with an improved economic outlook that reflects higher growth and lower inflation, a goldilocks type scenario. The Fed’s one rate cut outlook continues to be at odds with pre-meeting futures market pricing of two rate cuts in 2026.
“While we agree with the Fed that the need for further monetary support is limited, we caution investors to put less weight than normal on the dots since a new Fed chair will be at the helm starting in May. Put differently, the outlook from the Powell-led FOMC bears less than usual on future Fed policy decisions given the imminent change in leadership.”
For Richard Flax, Chief Investment Officer at Moneyfarm, it’s the labour market which is taking centre stage as he comments: “The final FOMC meeting of 2025 closes a turbulent year for investors. This year has tested both investors and the central bank, shaped by extraordinary circumstances, most notably the ‘Liberation Day’ tariffs, which unsettled global trade. The Fed’s independence also came under sustained political pressure, which it appears to have resisted. Adding to the strain, the government shutdown in October and November left the US economy effectively flying blind, with the Fed operating without key data.
“In recent months, the Fed has faced mounting tension across its dual mandate: stabilising prices while supporting employment. Elevated rates risk driving up unemployment, yet stubborn inflation keeps CPI high. Navigating this trade-off has been particularly difficult amid political scrutiny.
“As Chair Powell succinctly noted, the Fed has only one tool to address both objectives. Today’s decision signals the Fed has made a clear priority – easing pressure on the labour market. By cutting rates, the Fed aims to provide some relief in an economy still wrestling with uncertainty.”
