US Federal Reserve cuts key interest rate for third and final time in 2025

Dubai: The US Federal Reserve delivered its third straight and final 25-basis-point rate cut of 2025, a highly anticipated move that offers clues about its outlook for 2026.

Policymakers voted 10–3 to lower the Fed’s key lending rate to a range of 3.50% to 3.75% — the first such split since 2019 — delivering the quarter-point cut markets had expected.

Meanwhile, the Central Bank of the UAE (CBUAE) too decided Wednesday to lower key interest rate by 25 basis points to 3.65% from 3.90%, mirroring the Fed decision.

Future uncertain

Ahead of the US decision, traders had fully priced in a quarter-point cut but trimmed expectations for deeper easing, with only two additional reductions now projected for 2026. Lower rates could gradually ease borrowing costs on mortgages, auto loans, credit cards and business financing.

While the move matched market expectations, the outlook is less clear. The Fed signaled at least one more rate cut next year and highlighted rising risks to employment. A deeper split also emerged inside the central bank, with three officials opposing the modest reduction.

There is still some optimism about a more dovish shift in 2026. Kevin Hassett — US President Donald Trump’s top economic adviser and the frontrunner to succeed Jerome Powell in May — has said he sees room for substantially lower rates.