Fed Cuts Rates by 25 Basis Points, Traders Bet on Two More in 2026

The Federal Reserve delivered a widely anticipated quarter-point interest-rate reduction, with a 25 basis point cut, on December 10, 2025. This decision was accompanied by three dissenting votes from Fed officials, who argued that the current economic conditions did not warrant a rate cut. As a result, US Treasuries rose, with yields decreasing by 3 to 5 basis points across the curve. The policy-sensitive two-year note led the declines, reflecting the market's anticipation of a rate cut and the subsequent decrease in borrowing costs. US government debt also strengthened as officials authorized fresh purchases of short-term Treasury securities to maintain an ample supply of bank reserves. This move is expected to inject liquidity into the financial system and support economic growth. The Fed's decision to cut rates by 25 basis points was seen as a cautious step, given the ongoing economic recovery and the potential risks associated with further rate cuts. However, the Fed's projections for one more rate cut in 2026 suggest that policymakers are still concerned about the economic outlook and are prepared to take further action if necessary. The market impact of the Fed's decision was significant, with US Treasuries experiencing a broad-based rally. The yield on the 10-year Treasury note fell by 3 basis points, while the yield on the 30-year Treasury bond declined by 4 basis points. This move is expected to have a positive impact on the mortgage market, with lower borrowing costs and increased demand for housing. The Fed's decision to cut rates by 25 basis points is a reflection of the central bank's ongoing efforts to support economic growth and job creation. The Fed has been monitoring the economic data closely, and the decision to cut rates suggests that policymakers are concerned about the potential risks associated with a slowing economy. Looking ahead, the Fed's projections for one more rate cut in 2026 suggest that policymakers are still concerned about the economic outlook. However, the market's reaction to the Fed's decision suggests that investors are becoming increasingly optimistic about the economic prospects. The yield curve, which had been inverted in recent months, has begun to steepen, suggesting that investors are pricing in a more positive economic outlook. In conclusion, the Fed's decision to cut rates by 25 basis points was a widely anticipated move, but the market's reaction suggests that investors are becoming increasingly optimistic about the economic prospects. The Fed's projections for one more rate cut in 2026 suggest that policymakers are still concerned about the economic outlook, but the market's reaction suggests that investors are pricing in a more positive economic outlook.