Federal Reserve Slashes Rates: Powerful Action Shakes Up Market

The Federal Reserve just wrapped up its final meeting of 2025 with a major move: cutting interest rates for the third time this year.

On Wednesday, Chair Jerome Powell and the committee voted to lower the benchmark rate by 0.25%, bringing the target range down to 3.5%–3.75%. The goal is to give the cooling labor market a boost, even though inflation is still hovering above the Fed’s 2% target.

A Balancing Act

The Federal Reserve is currently in a difficult spot, walking a tightrope. They have to balance stable prices with maximum employment, which is getting harder as trade and immigration changes slow down hiring. Ultimately, they decided the risk to jobs was too high to ignore.

It wasn’t an easy choice. Prices have actually been trending up lately due to tariff-related costs. By cutting rates, the Fed is signaling that preventing a job market crash is more important right now than immediately stamping out price increases.

What comes next?

You can expect this decision to ripple through the stock market, mortgage rates, and the wider economy. Now that the cut is locked in, Wall Street is focused on the “dot plot” to see where officials think rates are heading over the next few years.

There is also a big leadership question mark hanging over the agency. With Jerome Powell’s Federal Reserve term ending in May 2026, President Trump is expected to announce a new pick for Fed chair early next year. This adds a layer of political tension, as markets guess whether a new appointment will bring a more aggressive approach to growth and inflation.

For now, this meeting sets the tone for early 2026 as households and investors settle into this new phase of lower rates.