The US Federal Reserve’s Federal Open Market Committee ( FOMC ) delivered another widely anticipated interest rate cut early Thursday ( Hong Kong time ), trimming the federal funds rate by 25 basis points – its third and final cut for the year, to 3.5% to 3.75%

Markets had priced in this move with "real conviction", as reflected in an 81% implied probability earlier in the week, which had risen to approximately 95% by Tuesday. The decision comes as the Fed balances continued progress on inflation against still-resilient economic data.

Federal Reserve chairman Jerome Powell, however, signalled in a news briefing that this may be the last rate cut in a while saying, "We are well positioned to see how the economy evolves."

The move was supported by softening economic data, including a modest easing in the Core PCE inflation gauge to 2.8% from 2.9%, even though inflation remains elevated near the 3% mark.

With the December cut confirmed, attention has immediately pivoted to the future pace of easing, where expert opinions are divided.

The case for a steady rate easing cycle is argued by J.P. Morgan Private Bank global investment strategist Weiheng Chen, who says: “We expect the Fed funds rate to be between 3.25% and 3.50% by the end of 2026.”

Chen acknowledges that inflation is “likely to remain sticky through the first half of next year,” but he expects the Fed to “stay on track with its current easing cycle” as services inflation and rental prices ease.

The US economy should see “resilient growth and contained inflation in the year ahead”, supported by the “AI capex boom” and signs of labour market stabilization, he adds.

However, not everyone holds such a sanguine view. Bhas Nalabothula, head of US institutional rates at Tradeweb, notes that while a December cut had been priced in, “investors remain sceptical that the Fed will push meaningfully into early 2026 easing”. Tradeweb data showed an implied probability of only 28% for a 25bp cut in January 2026, rising to 63% by June 2026.

Other analysts highlight the risk of politically-motivated rate cuts. Swissquote senior analyst Ipek Ozkardeskaya cites the risk of policy division within the FOMC. While some FOMC members are pushing for quicker cuts, others urge caution, noting that tariff-driven inflation could offset disinflationary forces.

“If the Fed delivers politically driven cuts without economic justification, markets could push back, and long-term yields could rise,” Ozkardeskaya warns.

The US cut reflects differing expectations for global central banks, with the Bank of England showing an 88% probability for a December cut, while near-term easing for the European Central Bank remains minimal.

On the corporate front, the focus remains on the AI-linked economy. While Broadcom is expected to report constructive earnings, Oracle is being treated as a “bellwether of AI-related balance-sheet risk” due to its significant debt to fund AI and cloud expansion. Concerns linger that if cloud-backlog conversion slows or margins disappoint, the company’s “heavy spending combined with high debt could squeeze cash flow at the wrong time,” says Ozkardeskaya.