A Fed flying partially blind due to delays in the publication of key government data and facing the prospect of a hostile takeover from a US president hell-bent on commandeering monetary policy, cut rates by a quarter-point at its final meeting of 2025.

There were two hawkish dissents this time: Jeffrey Schmid repeated his October preference for no cut and he was joined by Austan Goolsbee. Stephen Miran of course voted for an upsized, half-point reduction, just as he did in October and September. Chair-in-waiting Kevin Hassett indicated this week that he too would’ve backed a 50bps move on Wednesday.

The new statement language didn’t reflect a de facto downgrade to the Committee’s labor market assessment to acknowledge that private sector data received since the Fed last met in late-October uniformly points to lost hiring momentum. The second paragraph retained (verbatim) language which suggests the Committee remains biased to protecting jobs, but that was it.

The forward guidance was adjusted to reflect the Committee’s intention to pause following Wednesday’s cut. “In considering the extent and timing of additional adjustments to [rates], the Committee will carefully assess incoming data, the evolving outlook and the balance of risks,” the third paragraph now reads.

Again, that reflects a predisposition to hold rates steady from here. Recall that the Fed included the same tweak in the December 2024 statement.

As for the SEP, the new dot plot still tipped just one cut for 2026. Seven policymakers expect no cuts. In all, half a dozen participants in this week’s proceedings favored no cut on Wednesday. The median out-year markers suggest rates will return to neutral in 2027 and stay there in 2028. The long run dot was unchanged.

The core inflation projection for next year was a tenth lower from the September SEP at 2.5%, while the unemployment rate outlook was unchanged at 4.4%. That, despite the UNR nearly rounding to 4.5% in September.

In conjunction with this week’s meeting, the Fed went ahead and declared that bank reserves have now receded such that “ample” is the best adjective. The days of “abundance” are officially over, and in light of that, the Fed will buy T-bills “as needed” to make sure the plumbing functions properly (i.e., to keep short-term rates from deviating too far from the Fed’s administered rates).

Coming quickly back to the outlook, it’d be tempting enough to scoff at the notion that a Fed beholden to Donald Trump will only deliver two cuts next year. The idea that they’ll only cut once is — frankly — laughable, particularly given the (non-trivial) odds that additional labor market deterioration forces the Committee’s hand as soon as Q1.

The nuanced take says a run-it-hot Fed will tie its own hands by creating the conditions for stubborn inflation. But as discussed here on Tuesday, that assessment assumes Trump feels constrained by voter inflation angst and intends to let the data speak. I don’t think those are safe assumptions and I think it’s likely he maneuvers to institute retroactive rules which could open the door to removing regional Fed presidents, as detailed here.

The outcome of 2025’s final FOMC meeting was as expected, which is to say a “hawkish cut.” Some observers disagreed, suggesting it might’ve been neutral or even dovish in places. I’ve learned, over the years, to go with my own interpretation because, let’s call it six times out of 10, my read ends up being more right than wrong with the benefit of hindsight.

With that in mind, between the Committee’s failure to acknowledge the accumulating private-sector evidence of labor market deterioration, the two hawkish dissents, a downward revision to the UNR projection for 2027 and a fairly sharp upgrade to the 2026 growth assessment (real GDP seen at 2.3% next year versus 1.8% in September), this is the most hawkish cut I can remember.

To reiterate: The available labor market data’s plainly skewed to the downside, and with no way of knowing what the deluge of delayed government figures due in the coming weeks might say about lost hiring momentum, this really wasn’t the time for hawks to be out on a limb. And that’s just what they are. Maybe this’ll look wise in hindsight, but my sense is that it sends the wrong message — namely, that the Fed’s fighting the last war. Again.

I suppose you might argue this is just for show. That the Fed’s making an attempt to reassert its independence ahead of what I’ll euphemistically call imminent “personnel changes.” If there’s any truth at all to that, it’s admirable, but if you ask me, the overtly hawkish bent imparted to Wednesday’s decision was a mistake all the same.

Whatever you want to say about the specifics of the decision, the dot plot should be written off as meaningless given not just extreme uncertainty around the trajectory of hiring, but also the fact that the Fed will soon be led by a lackey who’ll try his damnedest to cobble together a dovish consensus at every meeting. Lest he should be subject to the same weekly ridicule Jerome Powell endured for most of his tenure at the helm of the world’s most important institution.