US Interest Rate Prep
On Wednesday, the 10th of December at 14:00 ET, the FOMC concludes its 2-day meeting, and announces the latest US Interest Rate decision, as well as the latest Rate Statement and summary of Economic Projections.
Here are some views on what to expect.
Overview
Median analyst forecasts and market pricing expect the Fed to cut rates by 25 bps, which would bring the US interest rate down to 3.75%.
If realised, attention will turn to the Rate Statement, and more importantly, the Summary of Economic Projections.
General Expectations
US Stocks
The rate cut combined with projections of slower growth and modest inflation could buoy equities in the short term — especially rate-sensitive sectors (banks, real estate, consumer) — as lower borrowing costs may sustain consumer demand and business investment.
However, the somewhat cautious growth outlook and rising unemployment forecast might temper investor enthusiasm over the medium term, pressuring cyclicals and growth-dependent sectors if earnings start reflecting weaker demand.
US Dollar
Easing rates and a weaker growth outlook tend to weigh on the USD, as lower yields reduce carry appeal and slower growth prospects lower demand for U.S. assets.
Conversely, if inflation remains sticky or if the Fed signals fewer or later cuts than markets expect, the dollar could stabilize or even strengthen in anticipation of relatively tighter policy.
US Government Bond Yields
In the short run, the late-cycle rate cut may push yields lower, especially on short- and mid-duration Treasuries, as markets price in easier monetary policy.
Over the medium term, if growth disappoints or inflation remains stubborn, bond yields could remain subdued — but any unexpected rebound in economic activity or inflation could push yields up again, especially at the long end.
Federal Reserve Policy Trajectory
The SEP suggests the Fed expects to gradually lower rates over the coming years if economic conditions evolve as currently projected — meaning a “soft landing” path rather than aggressive easing or tightening.
However, the projections are data-dependent: higher-than-expected inflation, renewed labour-market strength, or adverse global developments could prompt the Fed to pause cuts or even consider tightening again.
Market participants will watch upcoming data (inflation, jobs, growth, financial conditions) and Fed communications closely — any significant deviation from SEP assumptions (positive or negative) could materially shift the policy trajectory.
Commentary
ANZ
The FOMC is expected to deliver a 25bp rate cut, lowering the federal funds target range to 3.50–3.75% at this week’s meeting, a move that markets have already fully priced in. The decision is not expected to be unanimous: at least two dissents are anticipated — one from an official favoring a 50bp cut, and another preferring no change. Policymakers are also expected to emphasize a cautious, data-dependent approach to any further easing.
Chair Powell is likely to acknowledge recent signs of softer hiring while noting that inflation remains elevated. The baseline outlook anticipates an additional 50bp of easing in 2026, delivered through 25bp cuts in March and June, which would bring the target range to 3.00–3.25%.
Bank of America
The Fed has signaled it will cut rates by 25bp to 3.50–3.75% at the December meeting. Analysts expect two or three notable changes in the FOMC statement. First, the description of labor market conditions will likely drop the phrase that the unemployment rate “remained low,” given the 32bp rise over the past three months. Second, forward-guidance language may be adjusted to show that the bar for additional cuts has risen, offering something to the hawks. One option is adding the word “any”—as in, “In considering any additional adjustments…”—while another, more dovish variant would reference “the extent and timing of” adjustments, a return to language used earlier in the year when the Fed was pausing but still anticipating more easing.
Rates strategists also expect the Fed to announce term repo operations and reserve management purchases (RMPs) beginning in January. While they see low odds of an IOR cut, they assign higher odds to a parallel reduction in both the Interest on Reserves (IOR) and Standing Repo Facility (SRF) rates.
Credit Agricole
The official call is still that the Fed will remain on hold at the December FOMC, though the authors admit they are likely to be wrong, with a good chance the Fed delivers another 25bp cut. After the October meeting, the call “was looking good” as hawks were in the ascendence, but they later “ceded the spotlight” to doves led by New York Fed President John Williams, causing an abrupt shift in market pricing. The Fed’s aversion to surprising markets and the lack of pushback likely suggest it is “teeing up another 25bp cut.” Still, divisions on the FOMC “have not gone away,” and there is a “substantial group” that would support a hold — possibly even a majority — though the permanent voters skew more dovish than the rotating regional presidents.
If a cut happens, it will likely be presented as a hawkish one, with Chair Powell stressing that nothing is guaranteed and possibly hinting at a slowdown in the pace of easing. One thing to watch is whether the statement reinserts the phrase “extent and timing” to describe “additional adjustments,” language that has generally coincided with a more cautious approach. The dot plot medians may come in unchanged, implying one cut in 2026, one in 2027, and none in 2028, though there is a risk they shift to two in 2026 and none in 2027–28, which would be the same total amount of easing. For the SEP, limited change is expected given limited data since the last meeting; inflation projections could come marginally down for 2025 but should still be around 3%.
Previous Release
Summary of Last Rate Decision
At the FOMC’s September 2025 meeting, the Fed cut the federal funds target range by 25 basis points to 4.00%–4.25%, the first cut of the year.
The decision was driven by growing concern over a slowing labor market and signs of softer economic momentum, despite inflation remaining modestly above the Fed’s long-run 2% target.
Alongside that rate decision, the Fed updated its official economic projections (SEP), offering its latest outlook for growth, unemployment, inflation, and appropriate policy rates under its assumptions.
Summary of Economic Projections (from SEP)
Under the 2025 SEP (published September 17, 2025), FOMC participants provided their individual forecasts (which are collated into “ranges,” “central tendencies,” and a “median” for each variable) for real GDP growth, unemployment, PCE inflation (headline and core), and the appropriate federal funds rate for 2025-2027 and over the longer run.
Key takeaways
Federal Funds Rate: The midpoint (“median”) of the SEP’s central-tendency projections shows target rates gradually drifting lower after 2025 — suggesting that the Fed sees room for rate reductions if economic conditions soften or inflation subsides.
GDP Growth: Participants expect moderating growth over the projection horizon, reflecting slower global demand, tighter financial conditions, and reduced fiscal/monetary support.
Inflation (PCE & Core PCE): Projections for inflation remain elevated in the near term (but lower than recent peaks), with a gradual decline toward the Fed’s long-run goal (around 2%).
Unemployment Rate: The unemployment rate is expected to rise modestly over the next few years, reflecting a cooling labour market, slower hiring, and more modest job creation relative to prior tight-labour conditions.
Importantly: each FOMC participant’s projections assume their own view of “appropriate monetary policy.” The SEP is forward-looking — not a guarantee, but a snapshot of the consensus view under current assumptions.
