In December 2025, the US Federal Reserve cut its benchmark interest rate to what target range?

In December 2025, the US Federal Reserve's Federal Open Market Committee (FOMC) reduced its benchmark interest rate, known as the federal funds rate, to a target range of 3.50-3.75 percent. This decision marked the third rate cut implemented by the Fed during 2025, bringing the rate to its lowest point since November 2022. The move was a response to evolving economic conditions, particularly concerns over elevated risks to both the labor market and inflation.

The Federal Reserve utilizes interest rate adjustments as a primary tool to influence the broader economy. By lowering the federal funds rate, the Fed aims to make borrowing cheaper for banks, which in turn can lead to lower interest rates for consumers and businesses on loans like mortgages, car loans, and business investments. This reduction in borrowing costs is intended to stimulate economic activity, encourage spending, and support job growth, especially when the economy faces potential headwinds or a slowdown.

At its December 2025 meeting, despite a government shutdown that delayed some key economic data, the FOMC determined that a rate cut was appropriate to achieve what Chair Jerome Powell described as a "neutral policy stance." This stance aims to neither restrict economic growth nor overly stimulate inflation, seeking a balance when facing dual risks to employment and prices. Alongside the rate cut, the Fed also announced plans to purchase short-term Treasury securities, a measure intended to help maintain the federal funds rate within its new target range. This strategic adjustment reflected the Fed's ongoing efforts to navigate complex economic challenges and foster both stable prices and maximum employment.