Remember when everyone was screaming that the Fed was “behind the curve” and rates would stay high forever? Yeah, about that. Here we are in December 2025 and the central bank just pushed through its third consecutive rate cut. Yet somehow the mood feels more like a funeral than a celebration. I’ve been watching these meetings for years, and let me tell you—Wednesday’s decision had more tension in the air than a Thanksgiving dinner after someone mentions politics.
A Classic Hawkish Cut Nobody Really Wanted
The Federal Open Market Committee lowered the federal funds rate by another 25 basis points, bringing the target range to 3.5%–3.75%. On paper that looks dovish. In reality? It was the most reluctant quarter-point you’ll ever see.
For the first time since 2019 we got three dissents on a single vote. Think about that. Three voting members said “no thanks” to the decision their own committee just made. That hasn’t happened in over six years. And the crazy part? The dissents went in both directions—two hawks wanted to hold steady, one dove actually wanted a bigger half-point cut.
When your committee can’t even agree on whether to ease more or less, you know the economic picture is messy.
Who Dared to Dissent (and Why It Matters)
Governor Stephen Miran—soon departing in January—continued his streak of pushing for faster cuts. On the other side, Kansas City Fed President Jeffrey Schmid and Chicago’s Austan Goolsbee both voted to pause. Translation: some policymakers still see inflation as sticky, others worry the labor market is softer than the headlines suggest.
Four additional non-voting participants registered “soft dissents” in the background. Seven officials in total now believe zero cuts are appropriate in 2026. That’s not exactly a ringing endorsement for continued easing.
“In considering the extent and timing of additional adjustments… the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
– Federal Reserve post-meeting statement (sound familiar?)
If that wording rings a bell, it should. The Fed recycled almost the exact same sentence from December 2024—back when it effectively slammed the door on further cuts for nine months. History doesn’t repeat, but it definitely rhymes.
The Dot Plot That Killed the Party
The infamous “dot plot” of individual rate projections barely budged from September. Officials still see only one cut in 2026 and another lonely one in 2027 before settling around 3% long-term. In other words, the easing cycle that started with such fanfare in September is already running on fumes.
Markets came into the week pricing in something closer to three or four cuts next year. Oops. Treasury yields jumped immediately after the release, with the 10-year briefly spiking above 4.5%. Classic “buy the rumor, sell the fact” move—except the fact was far less dovish than anyone hoped.
- 2025 end-of-year median forecast: 3.4% (implies basically no more cuts)
- 2026 median: 3.1% (one cut)
- 2027 median: 2.9% (another cut)
- Longer-run neutral rate unchanged at ~3%
Perhaps the most interesting aspect? The committee actually upgraded its 2026 GDP forecast from 1.8% to 2.3%. They see stronger growth ahead while simultaneously predicting higher unemployment and inflation that doesn’t hit 2% until 2028. It’s the rare “good economy, bad inflation” combo that keeps central bankers up at night.
Inflation Refuses to Die Quietly
Let’s be honest—the inflation fight is stuck in that awkward phase where it’s not raging anymore, but it’s definitely not gone. The latest preferred gauge showed prices running at 2.8% year-over-year. Progress, sure. Mission accomplished? Hardly.
Shelter costs remain the biggest culprit, and while some measures are finally rolling over, the lags in official data are brutal. Combine that with potential tariff discussions floating around Washington and you understand why several committee members are keeping one hand on the rate-hike trigger—just in case.
The Surprise Balance-Sheet U-Turn
Buried in the announcement was something that caught many off guard: the Fed is resuming Treasury purchases starting this Friday, beginning with $40 billion in T-bills. After loudly proclaiming the end of quantitative tightening, they’re quietly stepping back into the bond market.
Why now? Whispers of stress in overnight funding markets. Repo rates have been spiking sporadically, and reserves are getting uncomfortably thin for some primary dealers. Rather than risk a repeat of 2019’s chaos, the committee decided to provide a little extra liquidity lubricant before year-end.
They insist purchases will taper after a few months, but we’ve heard that song before.
Powell’s Delicate Tightrope
Chair Powell has exactly three more meetings left in his term. The political pressure is palpable. Incoming administration officials have made no secret of their preference for lower rates and a more compliant central bank. Prediction markets currently give a former economic advisor better than 70% odds of taking the top job.
Powell’s challenge? Maintain credibility and consensus while data arrives late (thanks to last month’s government shutdown) and the labor market sends mixed signals. Official payroll numbers look stable, but private layoff announcements topped 1.1 million through November. Something doesn’t add up.
What This Means for Markets Going Forward
Short version: the “Fed put” just got a lot more expensive.
Longer version: investors chasing another 2024-style melt-up on the back of aggressive rate cuts are likely to be disappointed. The bar for additional easing in 2026 is now sky-high. Unless we see a material deterioration in employment data—or a sudden plunge in inflation expectations—the committee appears content to sit on its hands.
- Mortgage rates probably stay range-bound near 6.5–7% unless Treasuries sell off hard
- High-yield credit remains attractive but pick your sectors carefully
- Equities face a higher hurdle for multiple expansion without lower rates
- Cash and T-bills still yield north of 3.5%—not terrible for defensive positioning
In my experience, the most dangerous environment for investors is when the Fed is done cutting but the market hasn’t accepted it yet. That’s exactly where we are right now.
The December 2025 decision wasn’t about celebrating victory over inflation. It was about acknowledging a fragile détente—growth holding up, inflation cooling slowly, and risks balanced on a knife’s edge. The Fed just told us, in the politest way possible, that the easy money party is winding down.
Whether you’re managing a portfolio, running a business, or just trying to figure out your next mortgage refi, the message is clear: plan for higher-for-longer, even if “longer” turns out to be shorter than the hawks want. The days of assuming endless rate cuts are officially behind us.
And honestly? Given how divided the committee already is, that might be the most responsible conclusion they could have reached.
