Central Bank decreases rates in December

Latest bank decision: At its meeting on 10 December, the Central Bank decided to lower the target range for the federal funds rate by 25 basis points to 3.50–3.75%, matching the cut at the previous meeting in October.

Softening labor market drives cut: The key domestic factors driving the cut were weakening job growth and rising unemployment in recent months, together with only a muted inflation passthrough to date from higher tariffs.

More cuts to come: The Fed’s own projections are for one further 25 basis-point cut by the end of next year. Most of our panelists see between one and two more cuts in 2026, though a few see more aggressive monetary easing. Much will likely depend on who becomes the next Fed chair after Jerome Powell’s term ends in May 2026. In the longer term, the fed funds rate is forecast to settle slightly above 3%.

Panelist insight: Commenting on their forecasts, ING analysts said: “ With the jobs part of the Fed's mandate looking more troubling – note Chair Powell suggesting the Fed thinks job gains have been overstated by 60,000 in recent months – we see the Fed cutting rates twice in 2026 with 25bp cuts forecast for March and June.” Nomura analysts said: “We continue to expect the Fed will remain on hold through the remainder of Powell’s term as chair (through May 2026). This view is mostly driven by our macro outlook; we expect accelerating growth, a resilient labor market, and elevated inflation in 2026. The Fed’s reaction function remains dovish, and we expect any indications of labor-market weakness could become a justification to deliver additional “risk-management” cuts, either under Powell or his eventual successor.”

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