US Federal Reserve Delivers Third Rate Cut: Global Markets Brace for Continued Easing Cycle Amid Economic Unease
London-UK, December 13, 2025
US Federal Reserve Delivers Third Rate Cut: Easing Cycle Confirmed
The United States Federal Reserve has concluded its final Federal Open Market Committee (FOMC) meeting of the year with a highly anticipated but controversial decision: a third consecutive quarter-point cut to the benchmark federal funds rate.
This US Federal Reserve Delivers Third Rate Cut action lowers the target range to 3.50%–3.75%, the lowest level the rate has reached in nearly three years.
The move officially signals that the world’s most powerful central bank has shifted its focus from battling inflation—a mandate that remains a concern—to actively safeguarding the cooling US job market and stabilizing the broader economy.
Global investors, households, and foreign governments are now closely scrutinizing the decision, as any move by the Fed instantly ripples across markets, driving up the value of US debt and affecting borrowing costs from London to Tokyo.
The committee’s official statement reflected a delicate balancing act, acknowledging that while inflation remains “elevated” and US President Donald Trump’s tariffs continue to impact supply chains, indicators suggest that “Job gains have slowed this year, and the unemployment rate has edged up.”
The decision confirms a new easing cycle, one that economists note is driven by a deep concern over a slowing labour market rather than a definitive victory over price stability.
The economic implications are massive, immediately triggering currency fluctuations, including the Indian Rupee hitting a new record low against the US Dollar shortly after the announcement.
Headlines Points
Benchmark Rate Lowered:
The US Federal Reserve cut the key federal funds rate by 25 basis points to a new target range of 3.50%–3.75%.
Third Consecutive Cut:
This marks the third straight rate reduction since September 2025, confirming a proactive shift toward monetary easing.
Focus on Employment:
The decision is driven by increasing concerns over a rapidly cooling US labour market, despite persistent inflation worries.
Markets Split:
The decision was not unanimous, with three committee members voting against the cut, highlighting deep internal divisions over the need for further easing.
Global Impact:
The rate cut caused immediate turbulence, with the Indian Rupee dipping to a record low of Rs 90.42 against the dollar as global investors reprice risk.
Divisions Within the FOMC
The significance of this cut is underscored by the visible divisions within the FOMC itself, which rarely sees such public disagreement. While the majority voted for the quarter-point reduction, three members dissented:
one pushing for an even deeper 50 basis point cut to aggressively stimulate growth, and two arguing for keeping rates on hold to ensure inflation is fully contained.
This level of internal conflict has not been seen in the Fed’s public voting record since late 2019, reflecting the unprecedented complexity of the current economic environment.
Fed Chair Jerome Powell, in the subsequent press conference, stressed that future decisions would remain “data-driven.”
However, the Fed’s own updated projections—the “dot plot”—signaled only one additional 25 basis point cut in 2026.
This projection clashes with market expectations, where futures traders are currently pricing in roughly two additional cuts next year.
This gap between the Fed’s cautious outlook and market hopes sets the stage for potential volatility in the coming months, as investors watch for any hard data that might justify a faster pace of easing.
The Global Economic Ripple Effect
The United States interest rate is the single most important metric for global finance, and this cut will send ripples across every major economy.
For the UK and Europe, lower US rates generally relieve pressure on currency markets and can ease the cost of servicing dollar-denominated debt.
However, the cut also signals a deterioration of the US economic outlook, a serious concern for European nations that rely heavily on the American consumer market.
The impact was most immediate and visible in developing economies. For India, the rate cut exacerbated capital outflow anxieties, pushing the Rupee to a historic low. When US rates fall, the differential between US and emerging market bond yields narrows, making US assets less attractive.
Conversely, when the Fed signals economic distress by cutting rates, capital often flows out of high-risk emerging markets and into the perceived safety of US treasuries—a mechanism that currently destabilized the Rupee’s value.
Furthermore, the cut could have a direct bearing on global trade tensions. The decision to ease rates comes as US trade policy, specifically the Trump administration’s tariffs, continues to disrupt supply chains and fuel domestic inflation.
By cutting rates, the Fed is essentially attempting to offset the inflationary and growth-dampening effects of the government’s trade policy, highlighting a significant disconnect between fiscal and monetary policy in the world’s largest economy.
As the global economy enters 2026, the question is not just how many more cuts the Fed will deliver, but whether this easing cycle can stabilize the job market without reigniting the battle against high prices.
