The Federal Reserve’s December 2025 meeting: What to expect and watch for when it comes to interest rates

The Federal Reserve (“the Fed”) is the U.S. central bank, and its Federal Open Market Committee (FOMC) meets eight times a year to decide whether to raise, lower or maintain the federal funds rate, which is the rate depository institutions charge to each other for overnight loans of reserve balances. Because the federal funds rate influences other critical interest rates, FOMC decisions can affect consumers’ everyday lives, potentially impacting everything from the cost of buying a home to the strength of the job market. Fed policy can also influence borrowing costs and hiring plans for businesses.

The final FOMC meeting of 2025 is scheduled for December 9 and 10, and many people will be watching closely to see if the Fed lowers interest rates for a third consecutive time. After lowering rates by 25 basis points in both September and October, Chair Jerome Powell has made it clear that another rate cut before the end of the year isn’t necessarily a given. In fact, minutes from the October Fed meeting show that officials are deeply divided on next steps. Read on for what to expect heading into December’s Fed meeting – as well as the signals to watch out for.

Recent economic indicators influencing the December Fed meeting

Complicating the Fed’s next move on interest rates is the recent shutdown of the federal government, which caused a temporary data blackout in the weeks leading up to the FOMC’s year-end meeting. As key government agencies were unable to release their usual reports on inflation, jobs and spending during the 43-day shutdown, the Fed was forced to rely on alternative data sources to assess the state of the economy. Powell compared the situation to “driving in the fog.”

Core inflation – which excludes food and energy prices – remains near 3%, above the Fed’s 2% target. Among other factors, rising prices stemming from new tariffs on goods are contributing to this effect.

In his October post-meeting remarks, Powell sounded cautiously optimistic about inflation but increasingly uneasy about the labor market. The unemployment rate is still relatively low, and layoffs haven’t picked up in the weekly data the Fed receives. But job creation has slowed, and some companies have announced hiring freezes or layoffs, suggesting the labor market is cooling even if it hasn’t weakened dramatically.

“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months,” Powell stated in October.

A delayed September jobs report – released in mid-November following those remarks – beat expectations to show the labor market has slowed but is steady. Employers added 119,000 jobs during the month, but the unemployment rate ticked up. October jobs data has been delayed until mid-December, after the next Fed meeting.

At the same time, economic growth has been stronger than expected, with gross domestic product boosted by strong consumer spending. That spending is becoming increasingly uneven, however, with higher-income households spending freely and lower-income households cutting back. There’s “much anecdotal data on that,” Powell said in October, commenting on the so-called K-shaped economy.

What FOMC voting members have said ahead of the December meeting

Fed officials have sent mixed signals ahead of the FOMC’s December meeting. In fact, their public comments have revealed just how divided committee members are with regard to another rate cut. Some argue that inflation is still too high to cut rates further, while others feel strongly that weakening job growth is the bigger issue.

Powell has acknowledged the differing perspectives of the FOMC, with the split among members one of the main reasons he maintains that another rate cut come December isn’t a done deal.

Fed officials for whom inflation remains a concern

Susan Collins, president and CEO of the Federal Reserve Bank of Boston, said November 21 that she believes holding interest rates steady would be “appropriate for now” because she expects inflation will stay elevated for the time being.

Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, thinks inflation remains the Fed’s most pressing concern. As a nonvoting member of the FOMC, he doesn’t vote on interest rate decisions but still participates in policy discussions and influences the debate. Bostic pointed to recent business survey results that show companies expect to continue with price hikes well into 2026. He also warned that lowering rates too soon could cause inflation to rise further.

“I’ve been able to get behind the last two cuts, and we’ll see what happens for this next one,” Bostic said on November 14 at an event in Seattle. “I want the information to guide where I think the appropriate policy should be.”

Fed officials who are open to a rate cut because of the job market or other concerns

Other Fed officials are amenable to a third consecutive rate decrease. John Williams, president and CEO of the Federal Reserve Bank of New York, shared the following in his recent remarks in Santiago, Chile: “My assessment is that the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat. Underlying inflation continues to trend downward, absent any evidence of second-round effects emanating from tariffs.” He continued, “I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral.”

Mary Daly, president and CEO of the Federal Reserve Bank of San Francisco, shared her concerns about the job market in a blog post dated November 10. In that same post, she extolled the importance of “an open mind” when it comes to additional rate cuts. She also argued that slowing payroll growth and weaker wage gains likely reflect cooling demand for workers – not just a smaller labor supply resulting from tighter immigration policy.

Fed Governor Stephen Miran, who has been advocating for rate cuts, told CNBC in an interview on November 10, “Failing new information that’s made me update my forecasts, looking out in time, yeah, I would think that 50 [basis points] is appropriate, as I have in the past, but at a minimum 25.”

Fed Governor Christopher Waller echoed a similar sentiment on further rate cuts on November 17 to a group of economists in London: “I am not worried about inflation accelerating or inflation expectations rising significantly. My focus is on the labor market, and after months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order.”

Fed officials who remain torn

Other Fed officials are on the fence. “We have to be very careful to continue to lean against above-target inflation, while continuing to provide some insurance” to the labor market, said Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, at a Fixed Income Analysts Society event on November 6.

Fed Vice Chair Philip Jefferson has voiced that, while he thinks risks to unemployment have increased, he believes the Fed should move forward with caution. At the Federal Reserve Bank of Kansas City on November 17, Jefferson said the following: “The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy. The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.”

What to watch for at the December Fed meeting

While the outcome of the FOMC’s year-end meeting will speak for itself, the specific language surrounding the rate decision may reveal important clues about the Fed’s future priorities. Pay close attention to which issue the Committee emphasizes the most in its public statement. If, for example, the statement’s focus is on continued high inflation, the Fed may be signaling caution about cutting rates. Meanwhile, highlighting stalled hiring or “downside risks” to employment could suggest growing concern about the job market.

The press conference that follows the statement release often provides even more insight, since Powell has the opportunity to explain the Committee’s thinking. References to layoffs, slowing job growth or cooling demand for workers might indicate more openness to future rate cuts. Commentary on stubborn inflation or warnings about premature easing, however, could point to more pauses down the line.

The bottom line

Whatever the FOMC decides in December, the outcome will set the tone for Fed policy in 2026. Although the key for this particular meeting will be balancing inflation with growing concerns about the labor market, the Fed’s ultimate aim is to stabilize the economy over the long term.

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