MNI Fed Review - Dec 2025: Not A Particularly Hawkish Cut

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EXECUTIVE SUMMARY:

• The FOMC delivered what was widely anticipated to be a “hawkish cut” at the December meeting, lowering the Funds rate range by 25bp to 3.50%-3.75% while portraying a cautious stance on further adjustments in the Statement and Dot Plot.
• But with most of the main communications having been well-anticipated – from the subtle shift in forward guidance in the Statement, to the unchanged Dot Plot rate forecast medians – overall the meeting outcome brought some slight dovish surprises and a concomitant market reaction.
• Rates markets ended up pricing in two 25bp cuts thorough October 2026 a little more firmly (by about 3bp) than they did before the decision, though a January cut remains a longshot (about 25% implied probability before and after the meeting).
• We go through the composition of the Dot Plot (unchanged medians, including 1 cut in each of the next 2 years), the adjustments to the economic projections (slightly lower inflation profile through 2026), and the change in Statement language (eyeing the “extent and timing” of future adjustments) in our review – but none of these were at all surprising. In particular, the paucity of official economic data since the September projections made it unlikely that participants would have a radically changed view of the outlook, and so it proved in the SEP.
• That didn’t mean there weren’t some surprises, but these were marginally dovish leaning on net.
• We haven’t yet seen any analyst view changes following the meeting, though there’s probably not enough new information received that would change opinions on the rate trajectory.
• See PDF report for:
  • MNI View
  • Market Reaction
  • MNI Instant Answers
  • Press Conference Transcript
  • FOMC Meeting Links
  • Policy Statement Changes
  • MNI Policy - Fed Watch