Federal Reserve Cuts Interest Rates by 0.5% in Surprise December Decision
The Federal Reserve has cut interest rates by 50 basis points in an unexpected move, citing cooling inflation and strong employment data. Markets rallied on the news, with the S&P 500 reaching new all-time highs.
By Emily Watson - Education & Social Issues Correspondent
Last Updated: December 17, 2025
Federal Reserve announces surprise rate cut
Surprise Decision
The Federal Open Market Committee voted 9-1 to cut the federal funds rate by 50 basis points to 4.0-4.25%, double what most economists expected. Fed Chair Powell cited faster-than-anticipated progress on inflation and a desire to support continued economic growth.
The decision marks the third rate cut this year, bringing total reductions to 125 basis points since September.
Economic Outlook
Inflation has fallen to 2.2%, near the Fed's 2% target, while unemployment remains at a historically low 3.7%. The combination of price stability and strong employment has created conditions the Fed calls 'soft landing' success.
GDP growth remains robust at 2.8% annually, defying predictions of a recession.
Market Reaction
Markets surged on the announcement, with the S&P 500 gaining 2.5% to close at a record 6,200. Bond yields fell sharply, with the 10-year Treasury dropping to 3.6%. Mortgage rates are expected to follow.