Federal Reserve Cuts Rates Again as Wall Street Rallies Despite Internal Dissent

2025-12-11 economy

New York, Thursday, 11 December 2025.
Wall Street rallied yesterday after the Federal Reserve cut rates by 0.25% to support the labor market. Notably, a rare 9-3 split vote signals growing internal division regarding the future pace of monetary easing in 2026.

Monetary Policy Shift Amidst Leadership Uncertainty

The Federal Reserve’s decision on Wednesday, December 10, 2025, marks a pivotal moment in U.S. monetary policy, arriving just as the central bank navigates a complex leadership transition previously detailed in our coverage of Federal Reserve Faces Leadership Transition Amid Inflation Concerns. In a move driven by emerging cracks in the employment sector, the Federal Open Market Committee (FOMC) lowered the federal funds rate by 25 basis points to a target range of 3.50% to 3.75% [1][2][5]. This reduction, the third consecutive cut since September, brings borrowing costs to their lowest level since 2022 [5]. However, unlike previous unanimous decisions, this meeting revealed significant friction among policymakers regarding the trajectory of future relief [6].

Labor Market Concerns Drive Action

While inflation has been the primary antagonist for much of the post-pandemic era, the Fed’s focus has squarely shifted to preserving the labor market. The decision to cut rates was heavily influenced by data indicating a cooling jobs landscape, specifically the ADP National Employment Report for November, which showed a loss of 32,000 jobs [2]. Furthermore, layoffs in November topped 1.1 million, exacerbating concerns about economic stability [6]. The absence of official government hiring data, delayed until mid-December due to the recent government shutdown that ended November 12, forced the committee to rely on these alternative indicators [2][6]. As noted by Michael Rosen, Chief Investment Officer at Angeles Investments, the committee’s statement emphasized labor market weakness as the “principal rationale” for the cut, signaling a willingness to continue easing if employment deteriorates further [1].

A House Divided: Historic Dissent

The unity that has characterized the Fed’s recent inflation fight fractured on Wednesday, resulting in a rare 9-3 split vote—the most dissent seen within the committee since September 2019 [5][6]. The division highlights a fundamental disagreement on the urgency of easing. On one side, Governor Stephen Miran argued for a more aggressive 50 basis point reduction to preempt a recession [5][6]. Conversely, regional presidents Austan Goolsbee and Jeffrey Schmid voted to hold rates steady, preferring a cautious approach given that inflation remains above the 2% target [5][6]. This internal discord suggests that the path forward for 2026 may be far less predictable than markets anticipate.

Markets Rally Despite Long-Term Caution

Despite the internal disagreement, Wall Street reacted positively to the immediate relief. Major indexes rallied on Wednesday, with the Dow Jones Industrial Average climbing 1.05% to close at 48,057.75 [1]. The S&P 500 gained 0.67% to finish at 6,886.68, while the tech-heavy Nasdaq Composite rose 0.33% [1]. The rally extended to the industrial sector, which led S&P gains with a 1.8% increase, bolstered by a 15.6% surge in GE Vernova shares following strong revenue forecasts driven by AI infrastructure demand [1]. Investors appear to be interpreting the Fed’s responsiveness to labor weakness as a “bad news is good news” scenario, where economic softness guarantees continued monetary support [1].

The 2026 Outlook: Slower Cuts Ahead

Looking ahead, the central bank signaled a significant deceleration in the pace of rate cuts. The updated “dot plot” of economic projections indicates that policymakers anticipate only one rate cut in 2026, a sharp contrast to the aggressive easing some investors had hoped for [3][5][6]. This hawkish outlook is supported by revised economic growth expectations; the Fed raised its 2026 GDP growth forecast by 0.5 percentage points to 2.3% [1][6]. Federal Reserve Chair Jerome Powell reinforced this cautious stance, stating that the committee is “well positioned to wait and see how the economy performs” before committing to further action in January [6]. Consequently, economists now assign a 62% probability to the Fed holding rates steady at the next meeting in late January [2].

Sources

Federal Reserve Monetary Policy