Macro Flash Note – December 11, 2025: The Fed cut rate by 25bps while internal decision differed. Markets price in 02 additional cuts totaling 50bps in 2026.

At the December meeting (December 10, 2025), the US Federal Reserve (Fed) executed its third-interest rate reduction of 2025, lowering the target range for the federal funds rate (FFR) from 3.75%–4.00% to 3.50%–3.75%, corresponding to a cut of 25 basis points (bps).

Broadly, this rate decision offered few surprises to the market; however, ancillary decisions regarding liquidity management emerged as the focal point, outlining the roadmap toward Quantitative Easing (QE) in 2026.

Key Decisions from the December Meeting:

• Rate adjustment: Lowered the FFR target range by 25bps to 3.50%–3.75%.
• Repo operations: Set the Standing Repo Facility rate at 3.75%.

• Reverse repo (RRP): Set the Overnight Reverse Repurchase Agreement (ON RRP) offering rate at 3.50% with a counterparty limit of US$160bn per day.
• Balance sheet operations: The Fed, via the Open Market Trading Desk, plans to purchase approximately US$40bn per month in Treasury bills (T-bills) or Treasury securities with maturities under 3 years. This will be conducted through Reserve Management Purchases (RMP) to maintain ample reserves.

Summary of FOMC December Economic Projections (SEP):

• GDP growth: Projections for 2025 and 2026 were revised upward.
• Unemployment rate: Forecasts remained unchanged.
• Core PCE inflation: Projections were slightly lowered compared to the September meeting.
• Dot Plot: Expectations for the FFR in 2026 remain unchanged, implying two rate cuts totaling 0.50% (50bps).