Washington, D.C., : In a widely anticipated move, the US Federal Reserve lowered its benchmark interest rate by 25 basis points to 4.25%–4.50%, marking its third rate cut of the year. The decision reflects a delicate balancing act: cooling inflation, a softening labor market, and ongoing global uncertainties.
Fed Chair Jerome Powell, speaking after the Federal Open Market Committee (FOMC) meeting, said the central bank was encouraged by November’s CPI reading of 2.6%, the lowest since early 2021. However, he noted that unemployment rising to 4.3% and geopolitical tensions—particularly the escalation in Ukraine—necessitated a cautious approach.
The rate cut injects an estimated $500 billion in liquidity into the US economy, aimed at supporting growth while steering inflation toward the long-term 2% target. Powell emphasized that while the latest figures suggest successful progress toward a “soft landing,” the Fed is “not declaring victory yet.”
Market Reaction: Relief with Caution
Wall Street reacted quickly, with the Dow Jones Industrial Average jumping 300 points. But tech stocks remained under pressure amid renewed concerns about aggressive AI regulatory frameworks expected in 2026.
The Fed’s updated dot plot suggests two additional rate cuts in 2026, with the core PCE inflation forecast revised to 2.2%. The policy shift aligns with global central bank strategies, as noted by ECB President Christine Lagarde, who signaled parallel easing in the Eurozone.
Political and Global Ripples
The move sparked partisan debate back home. Senator Elizabeth Warren grilled Powell over persistent wealth inequality, while GOP figures—led by Donald Trump—accused the central bank of “election meddling,” despite there being no national election in 2025.
Treasury Secretary Janet Yellen praised the decision, calling it a milestone in achieving a controlled slowdown without a recession. Economists say the cut will reduce mortgage rates, potentially boosting US housing demand by 5%. A weaker dollar is expected to benefit emerging-market exporters, including India.
Global Stability—With a Warning
The Fed’s move is expected to stabilize commodity prices and reduce recession risks worldwide. But policymakers warn that lingering supply chain disruptions and geopolitical shocks could complicate the path back to 2% inflation.
As global markets breathe a sigh of relief, analysts say the Fed’s December decision underscores a broader challenge: maintaining economic stability in a world still navigating the aftershocks of inflation, conflict, and technological disruption.
