Federal Reserve’s Federal Open Market Committee (FOMC) concluded its final meeting of 2025 on December 10 with two key actions: a 25 basis point (bps) cut to the federal funds rate and the initiation of targeted Treasury securities purchases totaling approximately $40 billion in the coming month.
These moves reflect a cautious effort to support a softening labor market amid persistent inflation pressures and broader economic uncertainty, including potential impacts from tariff policies and fiscal shifts.
The FOMC voted 9-3 to lower the target range for the federal funds rate by 25 bps to 3.50%–3.75%. This marks the third consecutive rate reduction in 2025 totaling 75 bps since September, bringing the cumulative cuts since mid-2024 to a more accommodative stance.
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Fed Chair Jerome Powell emphasized protecting against further labor market weakness, with unemployment projections holding steady at around 4.2%–4.5% through 2026. However, core PCE inflation remains elevated at 2.6% for 2025 down slightly from prior forecasts but above the 2% target, leading to internal divisions—three dissenters favored pausing cuts due to inflation risks.
The “dot plot”— policymakers’ rate projections signals just one additional 25 bps cut in 2026 (median target: 3.25%–3.50%), unchanged from September, with another possible in 2027. Powell noted no decision has been made on January 2026, stressing data-dependence amid “high uncertainty.”
This aligns with softer economic data like the revised 2025 GDP growth up to 2.1%–2.3% and dovish signals from officials like John Williams and Christopher Waller. Markets had priced in an 85%+ probability for this cut via CME FedWatch.
The Fed directed the New York Fed’s Open Market Trading Desk to conduct Reserve Management Purchases (RMPs) of approximately $40 billion in Treasury bills over the next 30 days, starting December 12, 2025. These are secondary-market buys focused on short-term securities to maintain “ample” bank reserves.
A tentative schedule will be released today (December 11), with monthly announcements ongoing. Purchases will be weighted by sector (e.g., bills outstanding as of September 2025) and could extend to other short-dated Treasuries if needed.
This isn’t full-blown quantitative easing (QE) but a technical liquidity tool to stabilize short-term funding markets after the Fed ended its balance sheet runoff on December 1. Reserves have declined amid Treasury issuance and bank deleveraging, prompting this “stealth” injection to avoid volatility without signaling distress.
Powell described it as temporary: elevated for “a few months” before tapering significantly. It’s paired with reinvesting all principal from agency securities into T-bills. Unlike 2020–2022’s open-ended asset buys, this is capped, targeted, and explicitly for reserve management—not broad stimulus.
Risks, tilted toward downside for employment; upside for inflation due to potential supply shocks. The S&P 500 and Nasdaq eked out modest gains +0.5%–1% post-announcement, but momentum faded into today’s session amid tech earnings misses like Oracle down 11% on AI capex concerns.
The Dow rose 1.2% (500 points) yesterday, reflecting relief on the cut but caution on the hawkish 2026 outlook. 10-year Treasury yields dipped to ~4.1% initially but rebounded slightly today as the buybacks were seen as non-inflationary.
Bitcoin ($BTC) briefly touched $94K post-cut but rejected sharply, trading at ~$90K (-2%–3%) on low volume; Ethereum ($ETH) at ~$3,200 (-3.6%). Altcoins (e.g., Solana -4.6%) followed suit, with total market cap down ~$160B. Sentiment is “risk-off” short-term, but the liquidity boost could support a rebound if $90K holds as support.
BlackRock’s IBIT ETF saw $192M inflows yesterday, a record. X discussions highlight “stealth liquidity” and potential “super cycle” for risk assets, with some viewing the eSLR easing as a bank-lending catalyst. Odds of $BTC hitting $100K by year-end fell to 30% on Polymarket.
The cut provides a tailwind for borrowing costs like mortgages, credit cards, but the divided FOMC and static dots temper aggressive easing bets. Buybacks should ease funding strains, potentially lowering volatility in money markets.
If labor data weakens further, expect the January cut odds to rise currently ~68% for 2+ cuts in 2026. Refinance opportunities may improve, but Powell noted a 25 bps drop won’t fix housing affordability. Crypto traders should watch $89K–$90K support; a break could test $87K.
Analysts like those at Bank of America see room for 2 cuts in 2026 if dots shift; others warn of tariff-induced inflation risks. This package underscores the Fed’s “wait-and-see” pivot: easing now, but bracing for a bumpier 2026.