Federal Reserve Cuts Rates for Second Time in 2025, Ends Asset Reduction Program

The announced on December 1, 2025, the second consecutive reduction in interest rates, marking a pivotal shift in monetary policy aimed at addressing a cooling labor market. The move underscores a broader strategy to stabilize as signs of slowing demand and labor market pressure emerge. This decision aligns with the Fed’s mandate to foster maximum employment and .

The reduction in the federal funds rate follows a similar adjustment in November 2025 and reflects the central bank’s responsiveness to evolving economic data. With labor market indicators showing a moderation in hiring trends and wage growth, the Fed has opted for a more accommodative stance to support . The rate cut is expected to lower borrowing costs for households and businesses, potentially stimulating investment and consumption.

In addition to the rate adjustment, the Fed announced the formal end of its asset reduction program, a key component of its post-pandemic . The program, which had been gradually shrinking the central bank’s balance sheet since 2022, is now complete. This cessation means the Fed will no longer be removing large volumes of Treasury securities and mortgage-backed securities from circulation, effectively stabilizing its holdings and reducing the potential for market volatility.

The timing of these actions is significant, as it reflects the central bank’s acknowledgment of shifting economic dynamics. While the labor market remains relatively strong, the Fed is preemptively adjusting to signals of potential weakness. The decision to end asset reduction provides further clarity to financial markets, signaling that the Fed is pivoting from a tightening phase to a more neutral posture.

The implications of the rate cuts and the conclusion of the asset reduction program are far-reaching. For financial markets, the Fed’s actions signal a shift in expectations regarding future monetary policy. Lower interest rates typically drive capital flows toward riskier assets, which could support equity and bond markets in the near term. For the broader economy, the accommodative policy is intended to bolster consumer spending, business investment, and employment growth.

The Fed’s statement emphasized that it remains committed to its dual mandate, with the current easing measures designed to support a smooth transition to a more sustainable economic trajectory. While inflation remains a concern, the central bank appears to be prioritizing labor market stability in its policy approach. This strategy reflects a balancing act, as the Fed seeks to avoid stifling growth while remaining vigilant against inflationary pressures.

Going forward, the central bank will closely monitor key economic indicators to assess the effectiveness of its policy adjustments. The Fed’s next steps will depend on how the labor market and inflation evolve in response to the recent easing. For now, the December 2025 decisions mark a definitive shift in the Fed’s policy direction, signaling a commitment to adapt to changing conditions in service of economic stability.