Fed December 2025 Meeting: Rate Cut Expectations Amid Official Divisions

This analysis is based on the New York Times report [1] published on December 10, 2025, which states the Federal Reserve is poised to lower interest rates at its final 2025 meeting, despite internal divisions with a growing number of officials urging caution. Market expectations for a 25 basis point (bps) rate cut stand at approximately 88% according to the CME FedWatch Tool [2], a significant increase from just 30% a month prior. This would mark the third rate cut of the year, following half-point cuts in September and October [3], reducing the benchmark rate to 3.5-3.75% from its current 3.75-4.0% range [3]. Pre-market trading on December 10 shows mixed performance across major U.S. indices: the S&P 500 is slightly down (-0.09%), while the NASDAQ Composite has gained 0.13% [0]. Interest rate-sensitive sectors display varied reactions: Technology (+0.39%) and Utilities (+0.38%) sectors are up, likely due to anticipated benefits from lower borrowing costs for growth companies and increased appeal of dividend-paying utilities [0]. In contrast, the Real Estate sector (-0.21%) is slightly down, reflecting uncertainty about the Fed’s future rate path beyond December [0], and Healthcare (-1.49%) is the worst-performing sector, driven by sector-specific factors unrelated to rate cut expectations [0]. Up to 3 Fed officials are expected to dissent against the cut, the highest number of dissenting votes in six years [5], stemming from concerns about inflation remaining above the Fed’s 2% target [4].

1. Priced-in Expectations
   : The 88% probability of a 25bps cut indicates the decision has largely been priced into the market [2], meaning positive reactions may be muted if the decision aligns with expectations.
2. Dissent Signals Caution
   : The high number of expected dissenters suggests a more divided Fed, which could signal a pause in rate cuts in 2026 [5].
3. Hawkish Cut Risk
   : A “hawkish cut” (accompanied by signals of a pause) could disappoint investors expecting continued easing, leading to potential market volatility.
4. Dot Plot and Press Conference Impact
   : The Fed’s dot plot and Chair Jerome Powell’s subsequent press conference will be critical for shaping 2026 rate expectations and market sentiment.

• Unexpected Decision
  : If the Fed fails to cut rates, the market could experience a sharp sell-off due to mismatched expectations.
• Inflation Reacceleration
  : Lower rates could stoke inflation, which remains above the 2% target, potentially leading to future rate hikes [4].
• Geopolitical and Global Risks
  : Tariff-related inflation and global economic uncertainty could complicate the Fed’s policy path [4].

• Lower Borrowing Costs
  : Rate cuts benefit growth sectors like Technology by reducing the cost of capital for investment and expansion [0].
• Utility Sector Appeal
  : Dividend-paying utilities become more attractive to investors seeking stable returns in a lower interest rate environment [0].

• Fed statement and dot plot for future rate projections;
• Powell’s press conference tone and comments on inflation, employment, and tariffs;
• Post-announcement market and sector performance;
• Subsequent economic data (inflation, employment, GDP) that will shape future Fed decisions.

The Fed’s final 2025 meeting is expected to result in a 25bps rate cut (third of the year) with high market consensus [2], though divisions among officials may signal a cautious 2026 policy path [5]. Pre-market trading shows mixed index performance with sector-specific reactions to rate cut expectations [0]. The decision’s market impact will depend on accompanying signals about future rate moves and Powell’s communication [1]. Key risks include unexpected policy outcomes, inflation concerns, and geopolitical factors, while opportunities lie in lower borrowing costs for growth sectors and utility sector appeal.