The U.S. Federal Reserve issued its third straight quarter-point benchmark interest rate cut on Dec. 10. While expected, the central bank signaled it may be done reducing the rate for at least the near-term heading into 2026.

The latest rate cut moves the borrowing rate to a range of 3.5% to 3.75% — its lowest mark in 3 years.

U.S. Federal Reserve Rate

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The Fed approved the latest reduction by a vote of 9-3, which is the first time in six years that it had three dissenting votes. Two members favored no change to the federal funds rate, while one favored a cut larger than a quarter point.

In its “dot plot”

Forecasts for 2026 show a strong uptick in expected GDP growth, with the forecast rising to 2.3% compared to the 1.8% forecast in September. Inflation is expected to stay above the 2% target for the next few years, and the unemployment rate is expected to begin a slow downward trend after peaking at 4.5% in 2025.

“Another voice in the chorus predicting an economic uptick in 2026 is a welcome refrain. Machinery orders have already begun to accelerate as we entered the last quarter of 2025 and continued growth as those machines hit shop floors should be a comforting signal for the cutting tool outlook in 2026,” said Christopher Chidzik, principal economist of AMT – The Association For Manufacturing Technology. “Powell made sure to emphasize in the meeting that the quarter-point cut was not a foray into accommodative territory but simply a move toward the neutral rate. Yet the mounting number of dissents each meeting shows that the path forward is all but certain as the Fed navigates into 2026 with growing tension between the two sides of their dual mandate.”

Overall, the cuts in September, October and now in December are seen as a protective measure against a bigger-than-expected slowdown in hiring and a U.S. unemployment rate that has grown from 4.1% in June to 4.4% in September — with the 43-day government shutdown spanning Oct. 1 to Nov. 13 halting official employment reports since.

Forecasts for 2026 show a strong uptick in expected GDP growth, with the forecast rising to 2.3% compared to the 1.8% forecast in September. Inflation is expected to stay above the 2% target for the next few years, and the unemployment rate is expected to begin a slow downward trend after peaking at 4.5% in 2025. The Labor Department is set to release employment data for October and November on Dec. 15.

U.S. Unemployment Rate

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“Available indicators suggest that economic activity has been expanding at a moderate pace,” the central bank’s Federal Open Markets Committee (FOMC) statement said on Dec. 10. “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 Fed’s statement indicates a higher threshold for additional cuts.

The next FOMC meeting is set for Jan. 27-28.

“Another voice in the chorus predicting an economic uptick in 2026 is a welcome refrain,” commented Christopher Chidzik, Principal Economist of the Association for Manufacturing Technology. “Machinery orders have already begun to accelerate as we entered the last quarter of 2025 and continued growth as those machines hit shop floors should be a comforting signal for the cutting tool outlook in 2026. (Fed Chair Jerome) Powell made sure to emphasize in the meeting that the quarter-point cut was not a foray into accommodative territory but simply a move toward the neutral rate. Yet the mounting number of dissents each meeting shows that the path forward is all but certain as the Fed navigates into 2026 with growing tension between the two sides of their dual mandate.”