The Federal Reserve stands at a crossroads heading into its December 10, 2025 meeting, and nobody seems to agree on what comes next. After two consecutive 25 basis point cuts—one in September, another in October—the Fed's target range now sits at 3.75% to 4.00%. That's the lowest it's been since 2022. But the consensus? Gone.
Two rate cuts later, the Fed hits 3.75%–4.00%—and suddenly nobody knows what happens next.
The October meeting was messy. Two officials dissented. Miran wanted a bigger 50 basis point cut. Schmid didn't want any cut at all. The minutes revealed “sharply divergent views” about December, which is Fed-speak for nobody knows what they're doing. Most officials think more cuts are probably coming. Several think another 25 basis point reduction in December might not be appropriate. Many others prefer keeping rates unchanged for the rest of the year. Clear as mud.
Markets had been pricing in another 25 basis point cut, treating it like a done deal. Then Fed Chair Powell stepped in and said December “is not a foregone conclusion.” Translation: calm down and wait for the data. Now the base case is still a cut, but the risk is tilting toward a pause. Powell's statement itself is a form of forward guidance, signaling the Fed's intentions without committing to a specific path.
The labor market is sending mixed signals. Job gains have slowed throughout 2025. Unemployment edged up to around 4.3% to 4.4% in September, still low but higher than earlier in the year. The Fed noted downside risks to employment have increased, which pushed them toward October's cut. They're paying more attention to both sides of their dual mandate now, meaning they're actually worried about jobs, not just inflation.
Speaking of inflation, it's still somewhat elevated. The October statement said inflation “moved up since earlier in the year,” which doesn't exactly inspire confidence in the 2% target. The Fed wants to get back to 2%. They're just not there yet. When central bank monetary policy shifts like this, it tends to create volatility in currency valuations as traders reassess relative interest rate differentials. Whatever the Fed decides, interest rate decisions will ripple through foreign exchange markets and shape the dollar's trajectory against other major currencies.
