The US Federal Reserve’s Federal Open Market Committee (FOMC) has delivered a 25 basis point rate cut, bringing the target range to 3.50%-3.75%, a move largely anticipated by markets, reports Editor Sue Whitbread.
For investment managers, the decision underscores the Fed’s delicate balancing act between controlling inflation and supporting employment amid a complex and uneven economic backdrop.
Recent data have highlighted the challenges facing policymakers. Labour market indicators show signs of cooling, with ADP figures revealing a contraction of 32,000 private-sector jobs in November and overall unemployment rising to 4.4%. At the same time, inflation remains above target, partly due to tariff-driven price pressures. Delays in official data following the government shutdown have amplified reliance on private-sector metrics, intensifying scrutiny on the Fed’s next moves and the potential effectiveness of further rate cuts in stimulating growth.
Chair Powell’s remarks later this evening will be closely monitored for forward guidance, but investment managers are already weighing the implications for asset allocation, risk positioning, and portfolio diversification in a market where monetary easing is being delivered amid persistent uncertainties in labour markets, fiscal policy, and global trade.
Investment experts have been sharing their reaction to this latest Fed interest rate cut with us as follows:
Garry White, Chief Investment Commentator at Charles Stanley, comments: “The Fed’s 25-basis-point cut in interest rates is unsurprising. Recent data from the US suggests hiring has weakened, layoffs are rising, and consumer affordability is strained. Tariff-related price increases have kept inflation slightly above the central bank’s 2% target, but its dual mandate is to promote maximum employment as well as stable prices. It is the jobs market that is now in its focus as inflation has been brought back from runaway levels.”
Lindsay James, investment strategist at Quilter said: “Following all the speculation and expectation, the Federal Reserve has once again cut rates. The recent period of murky, and often missing, data made the job of the Committee incredibly challenging, leaving private data such as the ADP payroll figures carrying much more weight. This data was not kind in November, with it showing 32,000 private sector jobs were cut in that month, and despite a positive jobs report in from September when it was belatedly released last month, it came marred by downward revisions for August and an overall uptick in unemployment to 4.4%. However, there is plenty of evidence to suggest that immigration policy – not Fed policy – is a far greater driver of the apparent slowdown in the jobs market, and so imply that a rate cut – or indeed several – will have limited effect in this area of the economy.
“With US CPI having risen from 2.3% in April to 3% in September and pressures building in 2026 as fiscal stimulus begins to kick in, voting members are increasingly sounding more hawkish. Donald Trump clearly wants to run the economy hot in the lead up to the mid-terms with earlier expectations for deeper rate cuts in 2026 having been tempered in recent weeks. Some of this shift in tone could be a deliberate counter to the dovish tones coming from Fed Chair candidates; the current ‘favourite’ Kevin Hassett has said there is ‘plenty of room’ to cut rates. But if successful, he may find that building consensus involves bridging the gap with other voting members who have become deliberately more hawkish in order to minimise the extent of cuts ahead of time.
“With a flood of data due after the Fed decision, a hold at this meeting would have been understandable. A move to cut suggests not only that the committee are genuinely concerned by the labour market but also potentially about the wider health of the US economy, with a slowdown in specific sectors such as construction, casual dining and freight risking spillover effects elsewhere. With such high expectations for strong earnings growth as we move towards 2026, investors should continue to beware that the US economy is not in fact firing on all cylinders, underlining the need to tread carefully.”
Commenting on today’s FOMC decision, Max Stainton, senior global macro strategist at Fidelity International, said: “The US Federal Reserve cut rates by 25 basis points (bps) as expected, taking the Fed funds target range down to 3.5-3.75 per cent. However, the accompanying statement, which removed the forward guidance on additional cuts, alongside two hawkish dissents, gave this cut a hawkish flavour. However, the reintroduction of quantitative easing (QE) targeting $40bn bill purchases a month, alongside a set of dots which retained a cut next year and the year after, suggests there is still a large bulk of the FOMC who see interest rates as being able to fall further before hitting a neutral resting point.
“Looking ahead, we expect the market path of interest rates to be increasingly determined by speculation surrounding President Trump’s pick to be the new Chair, rather than the incoming data. In our base case scenario for 2026, we expect a non-traditional dovish Fed Chair to be appointed by the Trump administration, whose main objective is to lower interest rates further. This dynamic is likely to make the forward interest rate curve increasingly kinked around when the new Fed Chair will start in May 2026, with a new rate-cutting cycle getting priced in if this base case scenario comes through. While such a scenario has started to get priced by markets, there is potential for this to extend at both the front and back end of the curves, with a non-traditional dove as Chair an underappreciated risk to the back end.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) isn’t surprised by the move, saying: “The Fed cutting rates isn’t a surprise to markets, as they assigned roughly a 90% probability to this outcome. While the bar for deep cuts in the near term is relatively high, we think the central bank is likely to continue to lower rates in 2026, as the job market is cooling. An uncertainty is the next Fed chair, who will have the difficult task to maintain credibility while leaning on the dovish side.”
“The bigger picture remains one where 2026 begins on firmer ground than many feared. The recession that many expected in 2025 never materialised. Fiscal stimulus, falling interest rates and steady policy support have helped markets recover even as global politics and trade remain complex. The monetary and fiscal policy mix looks more expansionary. The Fed has now begun cutting rates, which is easing financial conditions and boosting asset prices. This is creating a ‘wealth effect’, giving consumers more confidence to spend. In the run-up to the midterms, Washington is also cutting taxes and deregulating.”
“Elsewhere, London is still focused on austerity, while Berlin has shifted to stimulus by boosting defence and infrastructure spending. Beijing is sustaining demand through state-backed measures, while Tokyo is coming up with a stimulus package. This monetary and fiscal support should keep growth positive in 2026, but moderately so. In the Eurozone, inflation is near the European Central Bank’s 2% target. In the US and the UK, inflation remains stickier, but weaker labour markets should ease it. We expect both the Fed and Bank of England to keep cutting rates in 2026, though less than the ECB, and with the Fed settling on a lower terminal rate than the BoE.”
“The challenge is that markets have already priced in much of these positive news. US equities reflect solid earnings, led by tech. Other equity markets are more attractively valued, but earnings growth is weaker. Corporate bonds look expensive, gold has surged, and government bonds can provide less reliable protection than before. A more predictable rhythm of US-China negotiations and reduced trade uncertainty have also contributed to the recovery.”
“But another challenge is that, beneath the surface, the world is shifting to a more fragmented multi-polar landscape. This regional fragmentation is fuelling competition for key technologies and supplies, while ageing populations and rising sovereign debt keep funding costs higher than before. These forces imply wider divergence in outcomes and less predictable market relationships, making differentiation across asset classes and geographies more important than ever.”
Capital.com’s Daniela Hathorn said: “The Federal Reserve delivered a widely expected 25bps rate cut at its December meeting, but the vote split more slightly more dovish than expected, with a 9-3 vote, only two dissenters to cutting, with one member voting for a larger 50bps cut, highlighting one of the most divided FOMC sessions in years. While policymakers agreed on the need to ease modestly amid patchy post-shutdown data and signs of slowing momentum, the updated communication stressed caution. The Fed made clear that this cut does not mark the start of an aggressive easing cycle, with emphasis on the fact that future moves will depend heavily on incoming inflation and labour-market data. The tone reflected a committee struggling to balance weakening economic indicators with a desire to avoid over-easing before inflation is fully anchored. The updated projections kept the 2026 year-end Fed rate unchanged at 2.4%, a metric that was being closely watched.
“Markets initially reacted positively to the dovish tilt. Equities pushed higher and short-term Treasury yields fell as traders interpreted the vote split as opening the door to additional easing in early 2026. The U.S. dollar softened as well, though not dramatically, given lingering uncertainty over the Fed’s long-run bias. Longer-dated yields held steadier, signalling that investors are not fully convinced of a smooth downward rate path and remain sensitive to potential inflation surprises. Overall, markets have embraced the cut, but with cautious optimism, acknowledging the policy shift while recognising that a fractured committee and data-dependent forward guidance could keep volatility elevated into the New Year.”
Richard Flynn, Managing Director at Charles Schwab UK comments: “The Federal Reserve delivered on market expectations, cutting rates by 25 basis points to a target range of 3.50%-3.75%. This move reflects growing concern over a softening labour market and the need to provide incremental support to the economy, even as inflation remains above the 2% target.
“This meeting carried added significance, coming after weeks of delayed economic data due to the government shutdown and amid news that the President has finalised a successor for the Fed chair.
“By acting pre-emptively, the Fed is signalling caution in the face of mounting downside risks, particularly as global growth remains sluggish and policy uncertainty persists.
“For investors, this is a measured adjustment rather than a dramatic pivot. While the cut could offer near-term support for risk assets, and potentially fuel a seasonal ‘Santa rally’, volatility is likely to remain elevated as markets assess the implications for future policy and the broader economic outlook.”
Gerrit Smit, lead portfolio manager of the Stonehage Fleming Global Best Ideas Equity fund said: ‘The Fed stays its steady course to support the economy. The 0.25% Fed cut is the right step at the right time with employment looking reasonably healthy, and the Fed retaining good firepower for later.’
For Richard Flax, Chief Investment Officer at Moneyfarm, it’s the labour market which is taking centre stage as he comments: “The final FOMC meeting of 2025 closes a turbulent year for investors. This year has tested both investors and the central bank, shaped by extraordinary circumstances, most notably the ‘Liberation Day’ tariffs, which unsettled global trade. The Fed’s independence also came under sustained political pressure, which it appears to have resisted. Adding to the strain, the government shutdown in October and November left the US economy effectively flying blind, with the Fed operating without key data.
“In recent months, the Fed has faced mounting tension across its dual mandate: stabilising prices while supporting employment. Elevated rates risk driving up unemployment, yet stubborn inflation keeps CPI high. Navigating this trade-off has been particularly difficult amid political scrutiny.
“As Chair Powell succinctly noted, the Fed has only one tool to address both objectives. Today’s decision signals the Fed has made a clear priority – easing pressure on the labour market. By cutting rates, the Fed aims to provide some relief in an economy still wrestling with uncertainty.”
Xiao Cui, Senior Economist at Pictet Wealth Management, said:
“The FOMC voted 9-3 to cut the fed funds rate to 3.5%-3.75%. Regional Fed presidents Schmid and Goolsbee dissented in favor of no cut, and four other officials registered soft dissents with their 2025 dots. Governor Miran dissented in favor of a 50bps cut. The median 2026 dot stayed at one cut as expected. The views among officials are highly split with seven officials forecasting no cut and eight officials forecasting two or more cuts.
“Both the policy statement and Chair Powell signaled a pause in the cutting cycle, but this hawkish shift was likely already priced in before the meeting. Powell noted the fed funds rate is ‘within a broad range of estimates of its neutral value’ and the FOMC is ‘well positioned to wait to see how the economy evolves’. This is more hawkish than his prior assessment that ‘policy is moderately restrictive’. Powell already downplays the importance of upcoming data, saying the household survey and CPI data may be distorted due to technical factors. This suggests a hold should be the base case for the January FOMC, with a high bar for the data to surprise the Fed into a cut.
“The FOMC upgraded its growth projection for 2026 (around half of the upgrade is due to the reversal of the government shutdown), lowered slightly its inflation estimates, and kept its unemployment forecast unchanged. Chair Powell appears optimistic about the growth outlook, citing productivity increases quite a few times during the press conference.
“We continue to think Chair Powell is on the dovish end of the current FOMC. He noted that the Fed has made progress on non-tariff inflation, and that inflation will peak in Q1 absent new tariffs. He also suggested recent average nonfarm payrolls growth of 40k is likely overestimated (based on past benchmark revisions) and the underlying pace is close to negative 20k.
We maintain our expectation of two cuts in 2026, at the March and June meeting, which are more front-loaded relatively to market pricing. The Fed maintains an easing bias as Chair Powell suggested a hike is not in anyone’s base case. Although we expect inflation to increase slightly from here, non-tariff inflation is likely to stabilize or even decline. With risks to the labor market still tilted to the downside, there’s scope for the Fed to bring rates a bit closer to the median estimate of a 3% neutral rate.
“The Fed announced purchases of T-bills of $40bn per month, starting Dec 12. The announcement was both earlier and larger than expected, bringing in a dovish element to the meeting. Chair Powell did note these reserve-management purchases were ‘for the sole purpose of maintaining an ample supply of reserves over time’, and the decision is ‘completely separate’ from monetary policy. He noted the amount of purchases is likely to be elevated going into April 15th, the tax day, as reserves drop sharply and temporarily, but the purchase amount could fall significantly afterwards. He noted a monthly pace of $20-25bn to be consistent with the secular growth of the balance sheet.“
Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments said:
“With yesterday’s 25bp cut widely expected, the markets are focused on the Fed’s guidance for 2026 and beyond. The Fed dots continued to show a single rate cut in 2026, but with an improved economic outlook that reflects higher growth and lower inflation, a goldilocks type scenario. The Fed’s one rate cut outlook continues to be at odds with pre-meeting futures market pricing of two rate cuts in 2026.
“While we agree with the Fed that the need for further monetary support is limited, we caution investors to put less weight than normal on the dots since a new Fed chair will be at the helm starting in May. Put differently, the outlook from the Powell-led FOMC bears less than usual on future Fed policy decisions given the imminent change in leadership.”
Christian Scherrmann, DWS Chief U.S. Economist said: “As expected, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points, reducing it to 3.5%-3.75%. However, the decision was not unanimous. Nine FOMC members voted for the reduction, two voted against changing policy rates, and one voted for a 50-basis-point reduction. Updated economic projections show growth at 2.3% in 2026 (up from 1.8%), inflation at 2.4% (down from 2.6%), and steady unemployment at 4.4%. The median projection for policy rates remains unchanged, signaling one additional cut in 2026 and one in 2027. The statement indicates a greater reliance on data for future decisions, most likely in response to the current situation in which much information is still missing. The statement included a comment about purchasing short-term Treasuries to maintain an ample supply of reserves, which should not be interpreted as an indication that the Fed is turning to quantitative easing.
“During the press conference, Fed Chair Powell echoed this view. Regarding the economy, Powell said that the outlook for employment and inflation has not changed much, adding that labor demand has clearly softened. He added that recent rate cuts have helped stabilize the labor market. He noted that disinflation for services appears to be continuing. This indicates that inflation for goods, which is likely affected by tariffs, is still considered temporary. Overall, central bankers seem optimistic about robust consumption, fiscal support, and investments, especially in AI.
“It seems the Fed is no longer in a hurry to cut rates further. Fed Chair Powell emphasized that they are well positioned to react to incoming data. He added that the current stance is close to neutral. Looking ahead, we believe labor markets will remain the determining factor as most central bankers seem comfortable with the temporary inflation narrative once again. We maintain our forecast of two additional rate cuts in 2026.
