Federal Reserve Rate Cut Prediction for December 2025

Market expectations for a Federal Reserve rate cut in December have cooled sharply, with the likelihood now sitting at roughly 30%.

This shift comes after the release of the Federal Reserve’s October meeting minutes, which revealed a wider split among policymakers over the need for another rate trim.

Several officials argued that recent economic data does not provide a clear enough reason to move forward, especially after delays caused by the temporary government shutdown.

With uncertainty rising and fewer members convinced a December adjustment is necessary, traders are watching every signal closely to understand the direction of rates heading into early next year.

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Key Takeaways

1. Many Federal Reserve officials believe there is not enough clear evidence to support a December rate cut, creating a noticeable divide.

2. Market expectations for a 25 basis point cut have slipped from about 48% to around 30%, reflecting growing caution.

3. Despite uncertainty in December, most policymakers still anticipate more cuts beyond early 2026, suggesting longer term easing remains possible.

Current Market Expectations

The market has shifted quickly in response to the Federal Reserve’s latest signals. Only a few days ago, traders were more confident that the December meeting would deliver another 25 basis point cut.

That confidence has faded as updated expectations place the odds near the 30% mark. This change reflects growing recognition that key employment and inflation reports were delayed due to the government shutdown, leaving officials without the full picture they typically rely on.

CME FedWatch Snapshot

The latest CME FedWatch data highlights how the outlook continues to adjust.

• Probability of a 25 basis point cut in December is around 32%.

• Chance of rates remaining unchanged is about 67%.

• For January, there is roughly a 50% chance of a cumulative 25 basis point cut, and a smaller chance of a deeper reduction.

The hesitation from traders reflects concern about mixed economic signals. Without consistent data, it becomes harder to anticipate how the Federal Reserve will act, and the market tends to favor caution when clarity is missing.

This environment has caused a pullback in aggressive rate cut predictions, supporting a more balanced view as the December meeting approaches.

Read Also: Fed Interest Rate Prediction December 2025: Will the Fed Cut Again?

What the Federal Reserve Minutes Reveal

The October meeting minutes shed important light on the reasoning behind the shift in expectations.

The meeting ended with a 10 to 2 vote in favor of a 25 basis point cut, moving the target rate down to the 3.75% to 4% range.

However, several participants expressed uncertainty, suggesting that holding rates steady would have also been appropriate.

Division Among Committee Members

Some officials noted that the economy has not shown enough convincing improvement to justify another immediate cut.

Others pointed out that several key data points were delayed because of the government shutdown, which created gaps in the decision making process. This left members uncomfortable about relying on incomplete information.

• Some committee members questioned whether easing should pause temporarily.

• Others supported keeping the pace of cuts but agreed that available data was not ideal.

• At least three dissenting votes are expected in December regardless of the final outcome.

This internal division explains the swift change in market expectations. When policymakers themselves are unsure, traders tend to follow the tone of caution, especially in months where data remains inconsistent.

Read Also: Federal Reserve Rate Cut Marks a Strategic Shift as Inflation Cools and Labour Market Softens

Why December Matters for the Broader Outlook

December’s meeting carries extra weight because it sets the tone for early 2026. If the Federal Reserve decides to hold, it could signal a slower pace of easing that stretches into the next year.

If it cuts, the path becomes more open for continued reductions, which most officials agree will be needed later.

Key Factors Shaping the Decision

• Several elements are shaping the December outlook.

• Economic stability remains uneven, especially with slowed data releases.

• Inflation trends have softened but remain sensitive to new shocks.

• Labor market conditions continue to show resilience, reducing pressure for immediate easing.

The Federal Reserve is trying to balance careful caution with long term planning. Many members still believe further cuts are needed in 2026 to support growth, even if December ends with no change.

For the market, this means uncertainty in the short term but a clearer direction over the longer horizon.

Read Also: Fed’s Bold Move: Is the Federal Reserve Finally Embracing Crypto Payments?

Conclusion

The Federal Reserve’s December decision is no longer seen as a clear step toward another rate cut. With the probability slipping to about 30%, traders and investors are adjusting to a more cautious environment.

The October minutes revealed a divided committee, incomplete data and a growing sense that December may not provide enough justification to move forward.

Still, the broader outlook suggests more easing may take place after early 2026, keeping long term expectations steady even as short term predictions shift.

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FAQ

Why did the probability of a December rate cut drop?

The probability fell because the Federal Reserve minutes showed more disagreement among officials and incomplete economic data due to the government shutdown.

What role did the October meeting play in shaping expectations?

The October meeting revealed mixed opinions on whether the economy needed another rate cut, which influenced market expectations.

How reliable are CME FedWatch probabilities?

CME FedWatch reflects real time trader expectations, which adjust based on Federal Reserve statements and economic data.

Will rate cuts likely continue after December?

Most policymakers still expect more rate cuts later in 2026, even if December remains uncertain.

How does the labor market affect the decision?

A resilient labor market reduces pressure for immediate easing, making it harder to justify a December rate cut.

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