News December 11, 2025
The Fed Cuts Interest Rates for Third Time This Year, Blames Tariffs for Inflation Overshoot
The announcement comes after the central bank cut rates twice this fall
Key Takeaways
• The Federal Reserve lowered interest rates by 0.25 percentage points to a range of 3.5%–3.75%, marking its third consecutive cut since September. Three officials opposed the move, highlighting ongoing division within the committee.
• Inflation stands at 2.8%, above the Fed’s 2% target, largely attributed to Trump-era tariffs. Meanwhile, hiring has stalled and layoffs are rising, prompting Powell to prioritize wage growth over further rate cuts for now.
• Powell signaled no immediate plans for additional cuts, noting rates are near neutral.
It almost feels like déjà vu.
After lowering interest rates by a quarter of a percentage point in September and another quarter of a percentage point in October, the Fed announced Wednesday it will once again cut rates by a quarter of a percentage point, shifting interest rates to a range of 3.5% to 3.75%. Three officials opposed the decision, marking the fourth consecutive vote that lacked unanimous support.
The highly contentious nature of the cuts suggest officials may be hesitant to lower borrowing costs further unless the labor market weakens significantly.
Inflation now sits at 2.8%, overshooting the Federal Reserve’s annual target of 2%. Powell believes this discrepancy is directly related to the enactment of Trump’s tariffs that went into effect in April.
3.5% to 3.75%
Interest Rate as of December 2025
“The story with inflation, and we are well aware that this is a story at this point, is that if you get away from tariffs, inflation is in the low two’s,” Powell said at a press conference Wednesday. “It is really tariffs that are causing most of the inflation overshoot.”
But while inflation rises, the job market continues to struggle. Hiring has come to a standstill and layoffs are a-plenty – workforce trends the promo industry is not immune to. However, striking a delicate balance between controlling prices and growing jobs continues to be a challenge for the Fed. Powell confirmed the central bank can’t do both at once, so while it’s keeping an eye on inflation, its priority now is driving paycheck growth so people can afford higher prices.
“We are trying to keep inflation under control, but also support the labor market and strong wages, so that people are earning enough money, and feeling economically healthy again,” he said.
Meanwhile, on Wall Street Wednesday, the Dow gained 497 points (equivalent to 1.05%), the S&P 500 gained 0.67% and Nasdaq Composite gained 0.33%.
Fed Chair Jerome Powell noted the central bank has not yet decided about further cuts in the new year. “I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the Fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves,” he said.