What Is the Fed's Divided Third Rate Cut in 2025 and Why It Signals a Slower Path Ahead

Federal Reserve delivered its third interest rate cut of the year in a rare 9-3 split vote, lowering the federal funds rate by 25 basis points to a target range of 3.50%-3.75%. This “hawkish cut”—easing now but with clear caution on future moves—reflected deep divisions within the Federal Open Market Committee (FOMC), as three members dissented: two pushing for no cut amid inflation worries and one advocating a larger 50 basis point reduction to bolster employment.

The updated “dot plot” of projections underscored this tension, forecasting just one more cut in 2026 and another in 2027, while the Fed simultaneously announced a resumption of Treasury securities purchases starting with $40 billion in T-bills on December 12. As Chair Jerome Powell emphasized a “wait-and-see” stance, markets digested the signal of limited easing ahead, potentially capping risk assets like Bitcoin amid ongoing blockchain trends in stablecoin liquidity and decentralized finance.

What the Fed’s December 2025 Rate Cut Decision Entails

The FOMC’s action marks the culmination of a gradual easing cycle initiated in September, responding to a cooling labor market—unemployment at 4.4% and job growth at decade lows—while core PCE inflation holds at 2.6%, above the 2% target but trending downward. The 9-3 vote, the most dissents since September 2019, highlights fractures: Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid opposed the cut, citing persistent inflation risks, while Governor Stephen Miran favored deeper easing. Powell described it as a “close call,” positioning the Fed “well placed to wait and see how the economy evolves.”

In tandem, the central bank shifted from quantitative tightening (QT)—halted December 1—to reinvesting maturing securities, starting with $40 billion monthly in short-term Treasury bills to maintain ample reserves without aggressive stimulus. This balanced approach aims to support growth without reigniting price pressures, especially amid Trump-era tariff uncertainties.

• Third consecutive 25 bps cut, bringing rates to 3.50%-3.75%
• Divided vote: 9 in favor; 2 against cut, 1 for 50 bps
• Dot plot: Median one cut in 2026 (to 3.25%-3.50%), one in 2027 (to 3.00%-3.25%)
• Treasury buys: $40B in T-bills starting December 12, potentially elevated short-term
• Powell: “We’re in the high end of neutral,” no January commitment

The Dot Plot’s Hawkish Tilt and Internal Divisions

The Summary of Economic Projections (SEP), or “dot plot,” revealed unchanged medians from September but widened dispersion: 19 participants projected rates from 3.00% to 4.25% by end-2026, signaling no consensus on pace. This conservative outlook—down from market expectations of two 2026 cuts—stems from inflation vigilance and fiscal policy risks, with GDP growth steady at 2.1% for 2025 but unemployment forecasts unchanged at 4.5%. The plot’s stability masks hawkish shifts: fewer members now see rates below 3% long-term, reflecting tariff-induced inflation fears.

This internal rift, with three dissents, underscores the Fed’s delicate balancing act—supporting employment without overheating—potentially prolonging higher rates into 2026.

• Wide range: 2026 dots span 3.00%-4.25%; median unchanged at 3.38%
• Divisions: 7 members eye no 2026 cuts; 4 see two or more
• Economic views: GDP 2.1% (2025), inflation 2.6% core PCE
• Compared to September: Stable medians, but broader spread on rates
• Implications: Signals “higher for longer” amid policy uncertainty

Resuming Treasury Purchases: A Liquidity Bridge

Beyond rates, the FOMC announced targeted balance sheet normalization: resuming purchases of shorter-term Treasury securities to counter recent reserve drains, starting at $40 billion in T-bills (potentially higher initially) from December 12. This follows QT’s end on December 1, aiming to keep reserves “ample” without full QE revival—maturing Treasuries reinvested in Treasuries, MBS paydowns into T-bills. Powell noted money market tightening as the trigger, ensuring stability without excess stimulus.

This move injects modest liquidity (~$480 billion annually if sustained), benefiting short-term funding but signaling no aggressive expansion.

• Initial: $40B monthly T-bills; adjustable based on conditions
• Rationale: Reserves at “ample” levels after QT runoff
• Structure: Reinvest maturing holdings; no cap on total balance sheet
• Market reaction: 10-year yields dipped 2.6 bps to 4.16%
• Ties to crypto: Eases funding for DeFi and stablecoin yields

Market Reactions and Economic Implications

Equities rallied initially (Dow +0.5%, S&P flat), but bonds steadied with 2-year yields down 2.7 bps to 3.586%, reflecting tempered easing bets. CME FedWatch now prices 68% odds of a January hold, up from 32%, pressuring risk assets. For consumers, expect stable mortgage rates (30-year ~6.8%) but higher car loans (~7.2%); savers see APYs dip to 4.5%.

Broader economy: Supports moderate growth but warns of tariff-driven inflation, potentially delaying cuts.

• Stocks: Mixed; financials up on yield curve steepening
• Bonds: Yields lower short-end; 10-year at 4.16%
• Forex: USD +0.2% vs. EUR on hawkish read
• Consumer impact: Credit cards ~20% APR; savings ~4.5%
• Global: Eases EM borrowing but pressures exporters

Broader Trends: Fed Policy’s Ripple into Crypto and 2026 Outlook

The Fed’s cautious pivot—easing amid splits—intersects with crypto’s liquidity sensitivity: BTC dipped to $92,500 post-announcement, down 1.5% on hawkish dots, as higher rates curb DeFi borrowing and stablecoin yields. Corporate treasuries like MicroStrategy’s 660K BTC provide buffers, but $130M recent liquidations highlight leverage risks. 2026 forecasts: One cut if inflation cools; pauses if tariffs spike prices.

As blockchain matures—GENIUS Act enabling tokenized assets—this decision tempers “Santa rallies” but reinforces BTC as an inflation hedge.

• Crypto: BTC -1.5% to $92.5K; ETH yields dip to 3.2%
• DeFi: Borrowing costs stable at 5-7%; TVL +2% on liquidity hopes
• 2026 base: Rates to 3.00% if growth holds; hikes possible on shocks
• Regulatory tie: Supports compliant stablecoin growth
• Long-term: Neutral rate ~3%, per median projections

The Fed’s divided third rate cut in 2025—coupled with a hawkish dot plot and Treasury buys—signals a deliberate slowdown in easing, balancing jobs and prices amid uncertainties.

For markets, monitor January odds via CME FedWatch and Powell’s testimony. In crypto, prioritize secure wallets amid policy-driven swings.