Interest Rates: Federal Reserve Cuts Fed Funds Rate to 3.5%-3.75%

By Patrick Diamond, CFP®

Federal Reserve Chairman Jerome Powell announced a third consecutive interest-rate reduction at yesterday’s December FOMC meeting (prior cuts were at September and October meetings) and maintained the Fed’s outlook for just one cut in 2026. The Federal Open Market Committee voted 9-3 Wednesday to lower the benchmark federal funds rate by a quarter point to a range of 3.5%-3.75%. The 2-year Treasury, which closely tracks the Fed Funds Rate, is trading at a yield of approximately 3.54% (chart above).

It’s been a year of nicely positive returns for fixed income investments (table below) and the yield curve continues to steepen with the long end of the yield curve (i.e., 30 year Treasuries having yields above the shorter end), with returns being driven by both income and price appreciation as yields have come down from the highs of 2024. Bond yields and prices have an inverse relationship: when one goes down (yields), the other goes up (price).

Source: Schwab

*Disclaimer: This blog post is for informational and educational purposes only. The information contained in this blog post is not legal, tax, or investment advice. Past performance is no guarantee of future results.