The Federal Reserve lowered the Fed Funds Rate by 0.25% at the conclusion of their FOMC meeting today. The rate will now be a target range of 3.50% to 3.75%. They also continue to condition any additional adjustments to the target range on incoming data, the evolving outlook, and the balance of risks.
Banks are anticipated to lower the Prime Rate to 6.75% effective tomorrow.
The Federal Reserve ended its Quantitative Tightening (QT) program this month and will no longer be reducing its balance sheet. While its holdings of mortgage securities will be reduced as those securities mature, all of those funds will be used to purchase Treasury Bills. So it’s Treasury Security holdings will now increase month over month.
While we prefer to just report the facts as they come, it’s important to recognize where monetary policy may be going. There has been an ending of QT and a normalization of the balance sheet at an historically outsized level which is more than seven times what had been useful and acceptable for many decades. The speculation by many Fed watchers is that in the near future the Fed will begin to ease again and grow the balance sheet.
UPDATE: Minutes after publication, Fed Chair Powell announced at his press conference the Fed will be growing the balance sheet again starting with a $40 billion purchase of Treasury Bills in the next month. Based upon his comments there is at least $100 billion of new easing coming.
The Fed and much of the mainstream coverage is emphasizing this as a “technical” tweak for reserve management (echoing 2019 operations to smooth money market stresses), but the optics and mechanics do suggest a pivot that’s more consequential than a mere housekeeping chore.
Ending QT last week and now layering in $40 billion in fresh T-bill buys over the next 30 days (with “elevated” levels for months) marks the first net expansion of the balance sheet since mid-2022, injecting liquidity at a time when reserves are dipping toward levels that could crimp short-term funding markets.
Powell today doubled down on the “not QE” line, stressing it’s about maintaining “ample” reserves without broader stimulus, but skeptics aren’t buying the spin entirely. Consider us in the skeptic camp as the downplaying of this as easing and as a major signal.
Press Release
December 10, 2025
Federal Reserve issues FOMC statement
For release at 2:00 p.m. EST
Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.
In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, 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 readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
The Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action 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 no change to the target range for the federal funds rate at this meeting.