This week's Federal Reserve policy meeting is set to be one of the most contentious in recent years. With key economic data missing due to a 43-day U.S. government shutdown, the meeting has evolved into a stress test of the Fed’s independence and decision-making process. Market expectations for a rate cut have surged from 30% to 97%, reflecting both data uncertainty and growing political influence.

Internally, the Fed is deeply divided, with a 4-4 split among key officials between holding rates and cutting. The dot plot shows a rare "bimodal distribution," with 7 officials favoring no change and 8 supporting a 50-basis-point cut. Doves point to a weakening labor market—unemployment rose to 4.3% in August, a four-year high—while hawks emphasize persistent inflation, with core PCE at 2.7%, above the 2% target.

Political pressure has intensified, notably through appointments like Stephen Milan, who voted for a deeper cut just one day into his role, aligning with former President Trump’s public demands. The upcoming Fed leadership transition adds further uncertainty, as officials may be positioning for future roles.

Amid data gaps and political interference, the Fed faces a complex risk-management dilemma: balancing concerns over slowing employment against inflation risks and soaring government debt interest costs. Communication challenges are heightened by internal divisions, forcing the Fed to rely more on high-frequency and alternative data. This meeting may mark a shift toward a new monetary policy framework where data scarcity and political pressure become persistent challenges to the Fed’s independence.

<html><head></head><body>This week's Federal Reserve policy meeting will be one of the most controversial decisions in recent years.Against the backdrop of a 43-day U.S. government shutdown that has led to a lack of key economic data, this meeting has transcended the realm of pure monetary policy, evolving into a stress test for the Fed's independence and decision-making mechanisms. <div><img style="max-width:100%;overflow:hidden;" src="https://d1x7dwosqaosdj.cloudfront.net/images/2025-12/bba210d48fa54c0eb6b00747c04ce0ea.png" alt=""></div>Market expectations for a rate cut have surged from 30% three weeks ago to 97% currently. This dramatic shift not only reflects collective anxiety in a data vacuum but also reveals that political pressure's influence on monetary policy is becoming more explicit.<h2>Data Fog and Internal Divisions</h2>The decision-making environment for the Fed at this meeting is exceptionally unique—the record 43-day U.S. government shutdown has resulted in the absence of most key economic data. This leaves the Fed, which has long emphasized being "data-dependent," seemingly navigating through a fog without clear coordinates for decision-making.The absence of key official economic data, combined with the "mixed" nature of other alternative data, means the macroeconomic situation lacks a clear, objective anchor, leading to significant divergence in interpretations from various parties. Internal disagreements have become public and are trending toward polarization.Currently, the stance on rate cuts among Federal Reserve Board members plus the New York Fed President presents a delicate 4-to-4 deadlock. This division is directly reflected in the dot plot, showing a rare "bimodal distribution"—7 officials support keeping rates unchanged for the full year, while 8 believe rates should be cut by 50 basis points. More notably, the reasoning from both sides is equally compelling. Dovish officials argue the job market has clearly deteriorated, with the unemployment rate rising to 4.3% in August, a four-year high, and nonfarm payrolls increasing by only 22,000, far below expectations. Hawkish officials, however, are focused on inflation issue, with the core PCE price index rising 2.7% year-on-year, still above the Fed's long-term 2% target. <h2>Pathways of Political Pressure Infiltration</h2>The uniqueness of this meeting stems not only from the lack of economic data but also from the fact that political pressure is介入 (intervening in) the monetary policy arena in an unprecedentedly direct manner.The Trump administration is directly influencing the structure of the Fed's decision-making layer through personnel appointments, breaking the long-standing tradition of "political neutrality" at the Fed. The appointment of new Governor Stephen Milan is of symbolic significance. As a Fed governor simultaneously serving as Chairman of the White House Council of Economic Advisers, Milan cast a dissenting vote just one day after taking office, advocating for a more aggressive 50 basis point rate cut.This policy stance highly aligns with Trump's public demand to "cut rates immediately and by a larger margin," raising deep concerns about the Fed's independence. More alarmingly, the Trump administration has clearly indicated that a nomination for the next Fed Chairperson might be announced before the end of December.For the current core Fed decision-makers, this meeting might be their last chance to state their position and choose sides. Policy decisions during this power transition period inevitably involve considerations of personal career prospects. The Fed faces not just a technical decision on interest rate adjustments but a severe test of its institutional independence. The balance between political pressure and professional judgment has become a key variable affecting the outcome of this meeting. <h2>The Dilemma of Risk Management</h2>Under the dual challenges of data absence and political pressure, the Fed's decision this time is essentially a complex risk management practice, requiring finding a balance between conflicting objectives. On one hand, the Fed needs to address the downside risks from a weakening labor market. Nonfarm payrolls increased by only 22,000 in August, a significant drop from the revised 79,000 in July, and the unemployment rate rose to a four-year high of 4.3%. If this slowing trend continues, it could trigger a vicious cycle of consumption contraction and economic recession. On the other hand, inflation risks persist. Although current price pressures mainly stem from supply-side factors (such as import costs pushed up by tariff policies) rather than demand-pull from an overheating economy, whether inflation expectations can be effectively anchored remains uncertain. If the rate cut is too large, it could increase inflation risks, even triggering a wage-price spiral. Making it more complex, the U.S. government's interest expense on debt has reached $1.1 trillion annually. While rate cuts could ease fiscal pressure, they might also fuel asset bubbles. This权衡 (trade-off) under multiple objectives complicates the Fed's decision-making framework, going beyond the traditional "dual mandate." <h2>Institutional Resilience and Communication Challenges</h2>This meeting tests not only the Fed's decision-making wisdom but also its institutional resilience and communication capabilities. With serious internal divisions, how to form a consensus and effectively communicate policy signals is a key challenge facing Chair Powell. The divergence in the dot plot is phenomenal. Among the 19 policymakers, 6 believe no further rate cuts are needed, 9 support two more cuts, and there is also one clear outlier (likely Milan) hoping for an additional 125 basis points of cuts this year. This dispersed forecast distribution increases market skepticism about the Fed's communication strategy. The Fed might address this challenge by strengthening forward guidance. A possible strategy is to emphasize the principle of "deciding meeting-by-meeting," avoiding clear commitments to the future path while stressing that policy will remain flexible. While this strategy might temporarily sidestep internal disagreements, it could weaken the effectiveness of policy signals. A more profound challenge is how to gain market trust for decisions made in a data-deficient environment. The Fed may rely more heavily on high-frequency data (like weekly jobless claims) and alternative indicators (such as business surveys and the Beige Book) as references for decision-making. This shift in decision-making mode itself is a test of its communication ability. As 2025 draws to a close, the Fed's future path remains full of unknowns. The分散的 (scattered) predictions on the dot plot indicate that officials hold differing views on the economic outlook and policy path for 2026. This meeting might inaugurate a全新的 (brand new) monetary policy framework: data absence will become the norm, not the exception; political pressure will move from behind the scenes to the forefront; and the Fed's independence will depend on its ability to maintain policy resolve in a complex environment. </body></html>

Fed Rate Cut Tonight Almost Certain, This Meeting More Like a 'Political Pressure Test'!

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The Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 3.50%-3.75% on December 10, 2025, marking the third consecutive rate cut. The decision was approved by a 9-3 vote. The policy statement removed the description of unemployment as "low," and the latest dot plot maintained the projection of an additional 25 basis point rate cut in 2026.  

Additionally, the Fed will purchase $40 billion in Treasury bills over 30 days starting December 12 to maintain ample reserve levels. The policy stance reflects concerns over moderating economic activity, a rise in unemployment, and inflation that remains elevated. The committee emphasized its commitment to achieving maximum employment and a 2% inflation target, noting increased downside risks to employment.  

Voting against the decision were Stephen Miran, who preferred a 50 basis point cut, and Austan Goolsbee and Jeffrey Schmid, who favored no change. The Board also unanimously approved a reduction in the primary credit rate to 3.75%.

<html><head></head><body>On December 10, 2025, local time, the Federal Reserve lowered the benchmark interest rate by 25 basis points to 3.50%-3.75% in a 9-3 vote, marking the third consecutive meeting with a rate cut. The policy statement removed the description of the unemployment rate as "low." The latest dot plot maintains the forecast of a 25 basis point rate cut in 2026.
Additionally, the Federal Reserve will purchase $40 billion in Treasury bills within 30 days starting December 12 to maintain ample reserve supply.
<h2>Full Text of the Interest Rate Decision</h2>
Available data indicate that economic activity is expanding at a moderate pace. Job growth has slowed this year, and the unemployment rate has risen as of September. More recent indicators are consistent with this situation. Inflation has increased compared to the beginning of the year and remains elevated.
The Committee's long-term goals are to achieve maximum employment and 2% inflation. Uncertainty about the economic outlook remains high. The Committee is closely monitoring risks on both sides of its dual mandate and believes that downside risks in employment have increased in recent months.
To support these goals and considering changes in the risk balance, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 3.50% to 3.75%. In assessing the appropriate timing and magnitude of any further adjustments to the target range for the federal funds rate, the Committee will carefully evaluate incoming data, the evolving economic outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% target.
In evaluating the appropriate monetary policy stance, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including labor market conditions, inflationary pressures and inflation expectations, and financial and international developments.
The Committee believes that reserve balances have declined to ample levels and will initiate purchases of short-term U.S. Treasury securities as needed to maintain ample reserve supply on an ongoing basis.
Voting in favor of this monetary policy action were: Chair Jerome H. Powell, Vice Chair John C. Williams, Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Philip N. Jefferson, Alberto G. Musalem, and Christopher J. Waller. Voting against were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting; and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred to maintain the target range for the federal funds rate unchanged at this meeting.
<div><img style="max-width:100%;overflow:hidden;" src="https://d1x7dwosqaosdj.cloudfront.net/images/2025-12/25d69cd7ea8e4ec7994fbc471492a9f4.png" alt=""></div>
Median Fed Dot Plot: Cumulative 25 Basis Point Rate Cut in 2026
<h2>Decisions Regarding Monetary Policy Operations</h2>
To implement the monetary policy stance announced in the Federal Open Market Committee's statement on December 10, 2025, the Federal Reserve makes the following decisions:
The Board of Governors of the Federal Reserve System unanimously voted to lower the interest rate on reserve balances to 3.65%, effective December 11, 2025.
As part of the policy decision, the Federal Open Market Committee voted to direct the Open Market Trading Desk at the Federal Reserve Bank of New York, until further notice, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:
<blockquote>"Effective December 11, 2025, the Federal Open Market Committee directs the Desk:
To conduct open market operations as necessary to maintain the federal funds rate in a target range of 3.50% to 3.75%.
To conduct standing overnight repurchase agreement operations at an offering rate of 3.75%.
To conduct standing overnight reverse repurchase agreement operations at an offering rate of 3.50%, with a per-counterparty limit of $160 billion per day.
To increase the System Open Market Account's holdings of securities by purchasing Treasury bills and, if necessary, other U.S. Treasury securities with remaining maturities of three years or less, to maintain ample levels of reserves.
To reinvest all principal payments from the Federal Reserve's holdings of U.S. Treasury securities at auction. To roll over all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills."
</blockquote>
In related actions, the Board of Governors of the Federal Reserve System unanimously voted to approve a 25 basis point reduction in the primary credit rate to 3.75%, effective December 11, 2025. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, St. Louis, and San Francisco to set this rate.
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