The Federal Reserve's final meeting of 2025 kicks off December 9th, and markets are betting heavily on another quarter-point rate cut. But this decision is far from certain—and what the Fed signals about 2026 may matter more than the cut itself.
Where We Stand
The Fed has already cut rates twice in 2025:
- September: 25 basis points
- October: 25 basis points
The current federal funds rate sits at 3.75% to 4.00%. If the Fed cuts again in December, it would drop to 3.50% to 3.75%—still elevated by historical standards, but well below the 5.25-5.50% peak.
Why This Decision Is Complicated
The Fed is navigating unprecedented uncertainty. The 43-day government shutdown that ended in November disrupted economic data collection. October jobs and inflation numbers may never be released, leaving policymakers "flying blind."
Adding to the complexity:
Inflation remains sticky: The PCE inflation rate stands at 2.8%—still above the Fed's 2% target. Tariffs have pushed goods prices higher, with a 0.5% monthly increase in the latest reading.
The labor market is softening: Hiring has slowed to roughly 60,000-75,000 jobs per month, down from the robust pace of 2024. Unemployment has ticked up to 4.3%.
Fed officials are divided: Recent meeting minutes revealed sharp disagreements about whether to prioritize inflation fighting or labor market support. Some officials questioned whether October's cut was even necessary.
What Markets Expect
Despite the uncertainty, markets currently price in an 80% probability of a December cut. Fed Governor Christopher Waller and NY Fed President John Williams have both signaled support for easing.
But here's the key: it's not just about December. Markets are increasingly focused on the Fed's 2026 projections. If officials signal fewer cuts ahead, it could matter more than another 25 basis points now.
What This Means for Your Money
Savings Accounts & CDs
High-yield savings rates have been declining but remain attractive at 4%+. Another cut would push them lower. If you're sitting on cash you won't need for 12-24 months, consider locking in current CD rates before they fall further.
Mortgages
Mortgage rates are influenced more by 10-year Treasury yields than short-term Fed rates. Those yields have actually risen recently on tariff-related inflation concerns. Don't expect a Fed cut to translate directly into cheaper mortgages—rates may stay in the 6-7% range through early 2026.
Credit Cards
Credit card rates typically move with the prime rate, which follows the Fed. A 25 basis point cut would reduce credit card APRs by roughly the same amount. If you're carrying a balance, that's helpful—but rates would still be historically high.
Stocks
Lower rates are generally positive for stocks, as they reduce borrowing costs and make future earnings more valuable. But the relationship isn't automatic. If the Fed cuts because it's worried about recession, stocks could fall on the economic concerns.
The Smart Money Playbook
1. Don't time the Fed
Trying to make major financial decisions based on predicting Fed moves is a losing game. Make decisions based on your own financial situation, not central bank tea leaves.
2. Lock in rates where appropriate
If you're happy with current savings rates, CDs can lock them in. If you're considering refinancing debt, compare fixed vs. variable options carefully.
3. Stay diversified
Rate changes affect different assets differently. A diversified portfolio smooths out the impact of any single policy decision.
The Bottom Line
Whether the Fed cuts in December or not, we're clearly in a different rate environment than the near-zero days of 2020-2021. Rates will likely remain "higher for longer" even with continued cuts.
For savers, that's actually good news—your money earns meaningful interest. For borrowers, it means being more selective about taking on debt. For investors, it means focusing on quality companies that can thrive regardless of the rate environment.
