December 9–10 Fed Meeting is Shaping Up to Deliver the Third Rate Cut of 2025

As December rolls around, all eyes are on the Federal Open Market Committee (FOMC) meeting scheduled for the 9th and 10th. The general consensus, and indeed what the market is heavily leaning towards, is that this gathering will mark the third consecutive interest rate cut of 2025. My own reading of the economic signals suggests this is indeed the path most likely to be taken, as the Fed seems to be prioritizing shoring up a job market that's showing definite signs of strain and trying to steer us away from the choppy waters of a recession. While inflation isn't quite where we want it, the urgency to support employment seems to be the prevailing sentiment.

Dec 9–10 FOMC Meeting is Shaping Up to Deliver the Third Rate Cut of 2025

It feels like just yesterday we were talking about inflation being the main headache, and now the conversation has shifted so dramatically to the labor market. This isn't just a minor tweak in thinking; it's a significant pivot. As an observer who's been tracking these economic cycles for a while now, I've seen how quickly sentiment can change based on incoming data.

The sheer volume of signs pointing towards a softening job market is hard to ignore. We’re looking at a situation where job growth is slowing, unemployment is ticking up, and private payrolls have seen their steepest drop in a considerable time. These aren't abstract figures; they represent real people and real businesses, and the Fed is keenly aware of the ripple effects.

Why the Urgency for Rate Cuts?

The upcoming FOMC meeting is shaping up to be very telling, and the expectation of a third rate cut isn't just a shot in the dark. Several key economic pieces are falling into place that strongly suggest this move.

• A Labor Market Losing Steam: This is, without a doubt, the primary driver behind the expectation of a rate cut. Recent reports have painted a less rosy picture of U.S. employment. We've seen a noticeable slowdown in how many new jobs are being created monthly. Adding to this concern, the unemployment rate has been on the rise, and the recent figures for private payrolls have shown the sharpest decline we’ve witnessed in over two and a half years. When you see these kinds of numbers, it strongly suggests that the current level of interest rates might be a bit too restrictive, making it harder for businesses to hire and grow.
• A “Risk Management” Mindset: Fed officials have been increasingly talking about a “risk management” approach to their policy decisions. What this means in plain English is that they are actively weighing the potential downsides. In recent months, they've identified that the downside risks to employment – meaning the chances of job losses and a weakening labor market – have gone up. From their perspective, it's better to ease monetary policy now, making it cheaper for businesses to borrow and invest, than to wait and risk a more severe economic downturn. It’s like bracing for a storm; you batten down the hatches before the worst hits.
• The Inflation Puzzle: Now, I know what you're thinking: “What about inflation?” And you're right to ask. Inflation, while it has come down from its peak, is still above the Fed's 2% target. Latest figures put it somewhere around 2.8%. This is where the internal debate within the FOMC really heats up. However, many of the policymakers who are leaning towards cuts argue that a weaker labor market will naturally help cool down price pressures. They believe the immediate risk to jobs and economic growth outweighs the lingering inflation concerns, especially if they can bring inflation back down by simply letting the economy cool naturally.
• Whispers from Officials: The public comments from key Fed officials have also been instrumental in shaping market expectations. Leaders like New York Fed President John Williams and Fed Governor Christopher Waller have made statements that can be interpreted as leaning towards supporting a rate cut in December. These aren't just casual remarks; they are carefully crafted messages intended to guide markets and signal the likely direction of policy. When leaders speak, the market listens.
• A Pattern of Behavior: Looking back at past easing cycles, it's not uncommon for the Fed to make a series of adjustments. The rate cuts we've already seen in September and October 2025 are consistent with this historical pattern. Often, after a couple of cuts, there's a third one to really solidify the policy shift before the Fed takes a pause to assess the impact.

The Internal Tug-of-War: Hawks vs. Doves

While the majority of market watchers are banking on another rate cut, it's crucial to understand that this decision isn't going to be unanimous. Inside the FOMC, there's a palpable division of opinion.

We have the “hawks,” who are typically more concerned about inflation. They firmly believe that keeping interest rates higher for longer is essential to ensure inflation is truly on its way back to the 2% target. They worry that cutting rates too soon could reignite price pressures.

On the other side are the “doves,” who are more focused on supporting the job market and minimizing the risk of a recession. They see the current economic conditions as a clear signal that the Fed needs to provide more stimulus.

• The Core Conflict: The fundamental disagreement boils down to which part of their dual mandate – maximum employment or stable prices – presents the greater risk to the economy right now. It's a classic economic tightrope walk.

Group	Primary Concern	Stance on Rates	Rationale
Doves	Job Market, Recession Risk	Favor Cuts	Sees rising job market risks; views cuts as “insurance” and expects weaker labor market to cool inflation.
Hawks	Inflation Above Target	Favor Pause/Higher	Concerned inflation remains above 2%; fear cuts could re‑accelerate price pressures and be harder to control.

Factors Fueling the Labor Market Slowdown

The softening of the U.S. labor market isn't occurring in a vacuum. Several significant factors are contributing to this cooling trend:

• The Shadow of Tariffs: Honestly, the ongoing uncertainty around trade policies and tariffs has cast a long shadow over businesses. This has made many companies hesitant to expand or even maintain their current hiring levels. We're seeing companies freeze hiring and, in some cases, cut jobs. Smaller businesses, in particular, are struggling with fluctuating costs and supply chain disruptions.
• The Echo of Past High Rates: While the Fed has started cutting rates, the previously high interest rates that were put in place to combat inflation still have an effect. These higher borrowing costs can make businesses think twice before taking on new debt for expansion or investment, which naturally slows down the pace of hiring.
• The Impact of Government Shutdowns: We've unfortunately seen periods of government shutdown in 2025. These events, even if temporary, can disrupt economic activity. Sectors like retail and food service, which rely on consumer spending, can be particularly hit as those on lower incomes might see their financial support programs paused, affecting demand.
• Hiring Freezes and Job Cuts Hit Highs: The data is quite stark here. Many companies have put hiring freezes into effect, and job cut announcements have surged, reaching levels not seen since the pandemic. The number of available job openings has also dwindled, reaching its lowest point since early 2021. This paints a clear picture of a labor market that's transitioning from red-hot to more subdued.

The Complexity of Policy Decisions

The internal debates within the FOMC are understandable when you consider just how complex the current economic picture is. Deciding what's best for the economy when inflation is still a concern, but jobs are clearly at risk, is incredibly difficult.

• The Neutral Rate Conundrum: Adding another layer of complexity is the disagreement among FOMC members about the neutral interest rate. This is the theoretical rate that neither speeds up nor slows down the economy. When officials can't even agree on this baseline, it's natural that they would have different ideas about whether policy should be more restrictive or more accommodative.
• External Pressures: Beyond the internal economic data, the Fed also has to consider external pressures. The effects of trade policies and the fallout from government shutdowns add layers of uncertainty that make their decision-making process even more challenging.

My Take

From where I stand, the evidence pointing towards a third rate cut in December is strong. The Fed's mandate includes fostering maximum employment, and when the jobs market shows clear signs of distress, they typically act. While the inflation numbers lingering above target are a concern, the immediate risk to economic growth and employment seems to be the primary driver in their current thinking.

I expect the meeting will involve some heated discussions, likely resulting in a few dissenting votes. This isn't necessarily a bad thing; it reflects the genuine uncertainty and different perspectives on how to navigate these complex economic conditions. However, the prevailing sentiment, supported by the data and the rhetoric from key officials, strongly suggests that the Fed will err on the side of caution and provide a bit more of a boost to the economy by lowering interest rates. It's a delicate balancing act, and we'll be watching closely to see how this plays out in the coming months.