Jerome Powell Gives America an Early Christmas Present

But the Federal Reserve will crawl in 2026.

Federal Reserve Chair Jerome Powell gave the United States an early Christmas present. For weeks, Wall Street has been caught up in a will-they-or-won’t-they debate, watching central bankers present diverging views on whether the Fed should keep cutting or hold steady. After several weeks, the Fed delivered on a widely anticipated rate decision, although how it did it will be in textbooks.

Merry Christmas, Mr. Jerome Powell

At the final meeting of 2025, the Federal Reserve followed through on its third consecutive rate cut, lowering the benchmark federal funds rate by a quarter point. The new target range will be 3.5% to 3.75%, affecting everything from mortgage costs to credit card interest rates. But for the first time since September 2019, there were three dissenting votes.

Fed Governor Stephen Miran, President Donald Trump’s appointee, advocated for a half-point rate cut for the third straight meeting. Kansas City Fed President Jeffrey Schmid supported leaving rates unchanged – again – and Chicago Fed President Austan Goolsbee joined his colleague in keeping monetary policy steady for the time being. It was a fascinating turn of events.

Speaking to reporters at the post-meeting press conference, Chair Jerome Powell noted that it was a close call before voting 9-3 to pull the trigger on another rate cut. “I could make a case for either side,” Powell said. “It’s a close call. We always hope that the data will give us a clear read. It’s a very challenging situation. I think we’re in a good place to, as I mentioned, to wait and see how the economy evolves.”

While market watchers are taking the updated Summary of Economic Projections with a grain of salt, given the data vacuum, officials’ forecasts offer a glimpse of where they believe monetary policy and the broader economy are headed. The quarterly survey revealed that policymakers expect a single quarter-point rate cut in 2026 and 2027, suggesting that the trip down the escalator will be a slow one.

The good news, however, is that they revised the September forecasts. Put simply, they expect lower inflation, more vigorous growth, and stable employment conditions – the best of all worlds.

Does this mean an interest rate cut in January? A majority of investors think the Federal Reserve will hit the pause button to start the new year, according to the CME FedWatch Tool. Instead, the futures market believes the central bank will lay an easter egg, er, a rate cut in April. But it all depends on the data and the economy, the Fed leader told reporters.

“We’ll carefully evaluate that incoming data, and also, I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value, and we are well-positioned to wait and see how the economy evolves,” Powell said.

Another Round of QE

The Fed has kicked off a round of quantitative easing. Just don’t call it quantitative easing.

Effective December 12, the Fed will begin purchasing $40 billion of Treasury bills – maturities of 4 months to one year – per month to address overnight lending pressures. In other words, the institution’s balance sheet runoff is dead, and a lighter version of QE has returned to the limelight.

Jerome Powell and his colleagues want to ensure there are ample reserves in the banking system, fearing that they have fallen too low in recent weeks. While not technically a stimulus initiative, it is a liquidity operation that will keep financial conditions highly accommodative. But Powell insisted that it is a reserve management monetary policy operation rather than a tool to stimulate the US economy.

“We knew this was going to come,” Powell said. “When it finally did come, it came a little quicker than expected, but we were absolutely there to take the actions that we said we would take.”

Quantitative tightening is dead. Long live quantitative tightening!

Lame Duck

This was one of Jerome Powell’s final meetings as head of the world’s most powerful institution. It was also one of the last powwows where what Powell said mattered. Put simply, once President Trump selects his replacement, widely expected to be National Economic Council Director Kevin Hassett, all eyes will be on the shadow Fed Chair who will rest comfortably on the sidelines, taking notes – and potshots.