Will the Fed Cut Rates? What to Expect This December

As the holiday season goes into full swing, both investors and consumers remain fixated on the Federal Reserve and how it may alter interest rates moving forward. Until last month, there had been lots of hope that they would reduce interest rates to coincide with the previous month’s maneuvers.

However, additional factors have altered the playing field, leaving investors to seek clarity. Now, what was once seen as a guaranteed rate cut is now under new scrutiny. Here’s what you need to know about the Fed’s December rate decision and how it could affect the markets.

Federal Reserve’s Dual Mandate

The first thing to understand is that the Fed serves a vital role in the economy. Specifically, the group has a dual mandate that requires it to focus on maximizing employment and securing price stability. Established in 1913 under President Woodrow Wilson, the Fed was created to help stabilize the economy amidst the threat of ever-frequent bank runs of the time.

Control Interest Rates

In order to accomplish this task, the Fed adjusts interest rates. These adjustments enable them to alter market conditions by controlling how easy it is for consumers and businesses to access funding. This mechanism is the Fed’s main strategy when it comes to protecting the economy against inflation and other risks.

Why the Fed Cuts Rates (Easing Explained)

The Fed will lower rates when unemployment rises, inflation dips below the target rate, or the economy starts to cool off. This maneuver makes it easier for consumers to access lending capital, which directly correlates to more investing and spending. The goal is to provide more opportunities to investors during these times.

[Image of Federal Reserve monetary policy cycle diagram]

How Rate Cuts Affect the Economy

When interest rates are cut, it has a direct effect on the economy. For one, it opens the door for more economic activity as accessing funding becomes much cheaper. It can also help to boost local goods, as imports will have to deal with a weaker dollar, meaning their product will be more expensive. Conversely, exports from the US become more affordable abroad.

Potential Risks of Lower Interest Rates

There are some risks that come along with lower interest rates worth noting. For one, they often lead to inflation. As more money enters the economy, supply rises, causing values to drop. This situation can lead to several unfavorable scenarios, such as reduced value on your savings and a tendency to exacerbate market bubbles.

How do Markets Normally React After Cuts?

There is no set option for the market to take when the Fed cuts the rate. Most investors will examine the reason why they cut rates as a true metric of the state of the economy. In most scenarios, the economy will see a sudden uptick in activity following a rate cut. Specifically, stocks, bonds, and housing can experience stronger demand.

Why the Fed Raises Rates (Tightening Explained)

Conversely, when inflation and employment rise, the Fed will raise rates. This tightening of the economy will slow spending and price surges. Ideally, the Fed wants to try and keep inflation as close to 2% as possible. This control mechanism has helped prevent the US economy from experiencing the level of hyperinflation that occurred during the early 19th century.

How Employment Data Influences Fed Decisions

The second component of the Fed’s dual mandate revolves around employment. When employment begins to drop, the Fed will adjust interest rates and ease lending requirements. This maneuver opens the door for more borrowing, spending, and business investment.

When Does the Fed Decide to Change Interest Rates?

The Federal Open Market Committee (FOMC) meets eight times a year to discuss the state of the economy. During these meetings, it’s common to see interest rate changes. However, there isn’t any set date that the Fed must decide whether to change interest rates. Ideally, the group meets whenever the economic conditions require. Consequently, there have been some years with very few changes and others that have had several discussions and interest rate adjustments, like this year.

Factors Influencing Rates:

There are several benchmarks that the Fed examines as part of its decision-making processes. For one, it examines the lending markets. Specifically, they will review and set out new benchmarks for mortgages, auto loans, student loans, and personal loans. These guidelines are not set in stone, and lenders can charge higher interest when they deem necessary. Also, rates can vary significantly between banks, credit unions, and online lenders.

Current Interest Rates

On October 29, 2025, the Fed decided to cut interest rates by 25 basis points. This maneuver adjusted the target range to 3.75%-4.00%. This maneuver followed another rate cut just months earlier. This adjustment had a ripple effect throughout the economy. Here are the current interest rates for certain loans based on your credit.

Those who have a credit score of 720+ can expect to see APRs between 6.5% to 13.1% depending on individual factors. The same loan, but delivered to a person with very good credit, will secure an APR between 7% to 19%. From there, lending gets much more expensive.

Borrowers with good credit can expect 10% to 25% APR. Meanwhile, those with fair credit will be paying a hefty 20% to 35%. Even worse, those who have a 580 or lower credit score could encounter APRs as high as 35.99%, meaning that it’s going to cost them nearly 3x as much to access the same funding as those with a 720 score.

What to Expect from the Fed in December

Interestingly, there was a lot of confidence in September and October that interest rate cuts would continue until the end of the year. However, several factors have now put these rate cuts into question. For example, September employment numbers showed strong hiring.

Specifically, the report shows that 119,000 people were hired. This number is nearly double what had been predicted by most economists. However, unemployment did rise from 4.3 to 4.4% this month, signaling to analysts that many employees are reentering the workforce in search of better opportunities.

Inflation is Up

Another factor that will probably weigh heavily on the Fed’s decision-making process is inflation rates. Inflation continues to slowly climb, which is another reason why the Fed may decide not to raise or adjust the current rates until it sees more data. Consequently, many investors now assume the Fed will not make any major changes this month. Rather, they will sit and wait it out to gain more clarity. Part of the reason why it’s highly unlikely that they will make any adjustments is due to a lack of reports. The six-week government shutdown left the group without access to essential statistics. For example, the Bureau of Labor Statistics has stated that it will wrap October’s job data into November’s report to fill the void.

Lower Rates for Banks – Not Consumers

While consumers should expect little to no change in interest rates, banks could get a break if the Fed lowers its benchmark federal funds rate. This rate dictates what banks charge each other for short-term loans. These loans are uncollateralized and usually have overnight repayment deadlines. Notably, the effective federal funds rate (EFFR) is published daily.

What Do Prediction Markets Say?

Polymarket acts as an independent and decentralized prediction protocol that operates on the Polygon blockchain. The platform enables users to place bets on the probability of certain outcomes. Users can bet on anything from politics, sports and even economic conditions. Consequently, it has become a useful tool for those seeking insight into potential market sentiment.

Source – Polymarket

Before the government shutdown, Polymarket had shown strong odds that the Fed would cut rates. Specifically, it listed a 72% probability that the Fed would cut rates by 25bps. These odds increased to 94% by mid-November before sliding back down to 60% following the missed October jobs report. However, they have now risen again, as investor confidence seems to be on the rise.

Recent History of Rate Cuts

A recent example of the Fed utilizing rate cuts to stabilize the economy occurred during the Gulf War recession, which lasted from July 1990 to March 1991. This financial debacle was caused by several factors, including a sudden spike in oil prices, unemployment, and a contracting GDP. This situation led the Fed to cut rates, which helped to stabilize pricing and open access to investment funds and consumer spending.

Only 7 years later, the Fed would intervene again. In this incident, the group chose to reduce interest points by 75 basis points. This maneuver enabled the US dollar to stabilize amid extreme volatility at the time. The group also cut rates from 6.5% down to 1.75% during the 2001 recession.

Another prime example of the Fed slashing rates occurred during the 2008 financial crisis. During this incident, the housing market and leading financial institutions faced severe losses. The Fed decided to reduce rates from 5.35% to almost zero, enabling institutions to access much-needed funding. Also, the group conducted 3 rate cuts in 2019 as a way to reduce the impact of a slowing economy.

How Markets React if the Fed Holds Rates Steady

There is a growing number of analysts who expect the Fed not to make any changes this week. They cite several factors, like the government shutdown, as reasons why it would be wise to wait another month before making any maneuvers. However, you should be aware that historically, no change doesn’t mean that the market will remain stable.

In many instances, no change is seen as a bad sign. This is the case when dealing with uncertain market conditions and shifting currency values. The lack of any solid decision can be seen as uncertainty, making it difficult for professionals to forecast vital expenses like cross-border costs and international revenues.

There have been several instances where the markets have become hyper-sensitive to key factors like inflation or political instability following a decision to delay interest rate adjustment. These factors reflect the public sentiment, which is that the cost of living is too high.

Political Influences to Consider

President Donald Trump has been vocal in his disdain for the high interest rates currently pushed by the Fed. On several occasions, he has spoken publicly about how they hurt the economy and cost consumers. He specifically cited housing, lending, and the national debt as examples of how the high interest rates are limiting the nation’s economic prosperity.

The president argues that the stock market’s growth should be enough assurance to support a significant rate cut. He seeks to have an interest rate on par with global competitors. For reference, the People’s Bank of China has a 3% interest rate mortgage benchmark versus the US’s 5.99% rate.

Why The Fed Is Hesitant to Lower Rates

There are several reasons why the Fed hasn’t taken the President’s advice. For one, the group has remained focused on controlling inflation. Currently, the US has 3% inflation, which is above the 2% target the Fed seeks to maintain. More concerning is that this rate is an increase over August’s 2.9% inflation and coincides with a higher consumer price index.

Tariff Uncertainty

Another reason why the Fed could decide to postpone its decision is uncertainty about Trump’s tariff strategy. Reports have shown that companies have yet to pass the full costs of tariffs to consumers. Many businesses decided to ease their customers into the higher prices, meaning that in the next couple of months, prices will increase, leading to added inflationary risks.

Will the Fed Cut Interest Rates? | Conclusion

When you examine all the facts, it’s easy to see how the government shutdown hurt Trump’s push for lower interest rates. The lack of data and heightened market uncertainty due to tariffs and conflicts are also factors that will weigh heavily on the committed decision.

For now, analysts remain split, with some predicting a delay as the most likely step and others expecting a 25 basis point cut, followed by another rate cut in January.

What do you think the Fed will do? Comment, like, and share this article, and click here for more interesting financial news.