The Federal Reserve's final meeting of 2025 is underway. The two-day gathering, which began Tuesday, December 9, will conclude Wednesday with Chair Jerome Powell's much-anticipated rate decision and press conference.

Markets are pricing in an 88% probability of a quarter-point cut, according to CME FedWatch data. If delivered, it would mark the Fed's third consecutive rate reduction and bring the federal funds rate to a range of 4.25% to 4.50%.

Why the Fed Is Likely to Cut

Several factors support another reduction:

  • Weakening labor market: Job growth remains below the pace needed to absorb new workers entering the labor force
  • Rising unemployment: The jobless rate has ticked higher in recent months
  • Inflation progress: While still above the 2% target, inflation has moderated significantly from its 2022 peaks

"This is a hard call," said Alan Blinder, former Federal Reserve vice chair. "But I do think it's more likely they cut than not. It wouldn't surprise me if this is a 'hawkish cut.'"

Goldman Sachs chief economist David Mericle expects the Fed to deliver its third straight quarter-point cut "at what will likely be a contentious December meeting."

What This Means for Your Savings

If you've been enjoying high-yield savings accounts paying 4.5% to 5%, those rates will likely drift lower in 2026. However, the decline should be gradual:

  • High-yield savings: Currently averaging 4.5-5% APY. Expect rates to settle around 4-4.5% by mid-2026 if the Fed continues easing.
  • CDs: Lock in current rates now if you want to preserve today's yields. A 12-month CD at 4.5% guarantees that rate regardless of what happens next.
  • Money markets: These will track Fed moves lower, but remain attractive compared to traditional savings accounts.

What This Means for Borrowers

Lower rates are welcome news if you carry variable-rate debt or plan to borrow:

  • Credit cards: Average rates near 21% should edge down, though credit card rates typically lag Fed moves
  • Home equity lines (HELOCs): Directly tied to the prime rate, these will see quicker relief
  • Auto loans: New car loan rates could fall below 7% in early 2026
  • Mortgages: Less directly tied to Fed rates, but the overall easing environment should help

What This Means for Investors

Mark Hackett, chief market strategist at Nationwide, says "This week's FOMC decision could set the tone for the remainder of 2025 and beyond."

Historically, rate cuts have been positive for stocks—but context matters. Rate cuts during economic expansion typically boost equity returns. Rate cuts during recession are often accompanied by falling stock prices.

The current environment leans positive:

  • Corporate earnings remain solid
  • Consumer spending continues
  • The labor market, while cooling, isn't collapsing

Another rate cut "would reinforce the narrative of easing financial conditions," Hackett notes. However, "any deviation from the expected path, or hawkish commentary, could recalibrate positioning and volatility."

Looking Ahead to 2026

The bigger question is what happens next year. Fed officials remain divided on the pace of future cuts, with minutes from November's meeting showing "deep divides among policymakers."

Markets currently expect two to three additional cuts in 2026, but that could change based on incoming economic data. The Fed's updated economic projections, released Wednesday, will offer clues about policymakers' expectations.

The first FOMC meeting of 2026 is scheduled for January 27-28.

What You Should Do Now

Rather than trying to time Fed moves, focus on fundamentals:

  1. Lock in CD rates if you want guaranteed returns at today's levels
  2. Pay down variable-rate debt while rates are still high—don't wait for cuts
  3. Stay invested in your long-term portfolio regardless of short-term Fed moves
  4. Refinance high-rate debt if you see opportunities in early 2026

The Fed's December decision is one data point in a longer journey. The direction is toward lower rates—but the pace remains uncertain.