Fed 25 Bps Rate Cut and Kudlow's Claim on Trump's Economic Forecasting

The Fed’s 25 bps rate cut on December 10, 2025, aligned with broad market expectations, marking 175 bps of cumulative cuts since September 2024 [6]. The decision was not unanimous, with three dissenting votes revealing unusual division within the central bank: Trump-appointed Governor Stephen Miran pushed for a more aggressive 50 bps cut, while Austan Goolsbee (Obama appointee) and Jeffrey Schmid voted to maintain current rates [1][6].

Larry Kudlow, a Fox Business host and former Trump administration economic advisor, criticized the Fed’s economic projections (2.3% 2026 GDP growth, fading to 1.8% long-term) as “laughable,” proposing an alternative calculation (2.1% productivity growth + 1.3% labor force growth = 3.4% potential GDP) and arguing AI and Trump’s supply-side policies could drive growth to 3%–4% [6]. Concurrently, Trump commented the rate cut “could have been doubled at least,” expressing frustration with the Fed’s caution [6][8].

U.S. markets reacted positively to the news, with the Dow Jones Industrial Average rising nearly 500 points and the S&P 500 approaching a new record high, while 10-year Treasury yields declined [1][2][6]. However, the Fed’s outlook remains cautious, citing economic headwinds: a 4.4% unemployment rate (four-year high) with a “low hire, low fire” labor environment [8], and inflation that remains “somewhat elevated” despite a 25% drop in oil prices (from $80 to $60 a barrel) in 2025 [2][6].

1. The debate surrounding the Fed’s decision and Kudlow’s comments reflects the ongoing politicalization of monetary policy, with Republicans pushing for faster rate cuts to boost growth while the Fed balances growth and inflation risks [6][9].
2. The Fed’s divided vote highlights tension between differing policy priorities: aggressive rate cuts to stimulate growth (supported by Trump’s appointee) vs. maintaining rates to contain inflation (advocated by other members) [1][6].
3. Kudlow’s GDP projection relies on speculative assumptions about AI’s immediate impact on productivity, a factor the Fed has warned is overstated in short-term outlooks [10].
4. The market’s positive reaction suggests investor relief, but the Fed’s projection of only one additional 25 bps cut in 2027 creates uncertainty about future policy paths [2].

• Risks
  :
  • Threats to central bank independence from ongoing political pressure, particularly Trump’s history of criticizing Fed Chair Jerome Powell and pushing for rate cuts [9].
  • Policy uncertainty due to the Fed’s divided vote and cautious projections, which could dampen long-term investor confidence [1][2].
  • Speculative assumptions about AI’s impact on GDP growth, which may not materialize as quickly as Kudlow suggests [10].
• Opportunities
  :
  • Lower borrowing costs for consumers (mortgages, auto loans, credit cards) and businesses, potentially stimulating credit engagement and economic activity [2].
  • Potential for AI-driven productivity gains to boost GDP if technological adoption accelerates, aligning with Kudlow’s long-term growth expectations [10].

This analysis covers the Fed’s 25 bps rate cut on December 10, 2025, the divided vote among Fed members, Larry Kudlow’s controversial claim about Trump’s forecasting, Trump’s comment on the cut’s size, and the market reaction. Contextual factors include Kudlow’s partisan role, Trump’s history of Fed criticism, economic indicators (unemployment, inflation, oil prices), and the politicalization of monetary policy. The Fed’s cautious outlook and divided vote create uncertainty, while lower borrowing costs present potential short-term economic opportunities. No specific investment recommendations are provided.