The US Federal Reserve cut interest rates by 0.25 percentage points, meeting expectations. The federal-funds rate now stands at 3.50%-3.75%, down 1.75 points since September 2024. Despite the rate cuts, it remains above the pre-pandemic average of 1.7%. The meeting was uneventful, and the Fed is expected to hold rates steady in January.

The Fed cited downside risks to employment in its statement, leading to the rate cut. Inflation remains slightly elevated at 2.8% due to tariffs. Two FOMC members dissented on the decision, indicating growing hawkish sentiment. The federal-funds rate is close to the neutral level, suggesting no further cuts in January. Economic data will determine future rate adjustments.

The Fed’s economic projections remain stable, with a forecasted inflation rate of 2.0% by 2027. GDP growth was lower due to tariffs, but overall conditions align with expectations. Unemployment is expected to stay around 4.2%-4.3%, with a gradual decline in interest rates to 3.00%-3.25% by the end of 2027. The 10-year Treasury yield remained steady in 2025.

The 10-year Treasury yield fluctuated between 4.0%-4.5% in 2025, showing less volatility than in previous years. The authors do not own any shares in mentioned securities. Follow Morningstar’s editorial policies for more information.

Read more at Morningstar: US Fed Lowers Rates, but Future Cuts Will Require More Evidence of Weakness