The Fed Lowers Rates to 3.5 Percent Amid Unprecedented Internal Dissent

A Fragmented Fed Delivers the Third Cut of 2025

The Federal Open Market Committee just concluded its final meeting of 2025 with a decision that underscores the fragility of the current economic expansion. By a vote of 9 to 3, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 3.50 to 3.75 percent. This move, finalized on the afternoon of December 10, 2025, marks the third reduction this year following cuts in September and October. While the headline number met market expectations, the internal breakdown of the vote reveals a central bank deeply at odds over the path forward. New FOMC Governor Stephen Miran broke ranks to push for a more aggressive 50 basis point cut, while hawks Austan Goolsbee and Jeffrey Schmid stood firm for a hold. This level of public disagreement is rare and signals that the consensus Jerome Powell has carefully built over the last three years is finally fracturing.

The decision comes at a moment of significant statistical blindness. A 43 day government shutdown earlier this quarter meant that the Bureau of Labor Statistics was unable to collect survey data for October. Consequently, the November CPI report, which showed headline inflation cooling to 2.7 percent from the 3.0 percent recorded in September, arrived without the context of a month on month comparison. The Fed is essentially flying a plane with a flickering radar. Despite the lack of clean data, the Committee prioritized the softening labor market, where the unemployment rate has crept up to 4.6 percent, over the lingering risks of sticky service inflation.

JPMorgan and the Resiliency of Net Interest Income

While the Fed grapples with policy direction, the nation’s largest lender is successfully navigating the transition to lower rates. In its most recent guidance update, JPMorgan Chase raised its 2025 net interest income (NII) forecast to approximately $95.8 billion. This is a significant upward revision from the $90 billion baseline many analysts feared at the start of the year. Jamie Dimon, ever the skeptic of easy landings, noted that while the economy remains resilient, the risks of tariffs and trade uncertainty could keep inflation structurally higher than the Fed’s 2 percent target.

The technical mechanism behind JPMorgan’s success lies in its deposit beta management. As the Fed cuts, the bank has been aggressive in lowering the rates it pays on wholesale deposits while lagging on consumer accounts. This widening spread, combined with a 5 percent year over year growth in average loans, has allowed the bank to maintain a return on tangible common equity (ROTCE) of 21 percent. However, the 25 basis point cut today puts immediate pressure on the 2026 outlook. The bank’s central case for 2026 now projects NII to dip slightly to $95 billion, reflecting the reality that the tailwinds from the high rate era are finally dissipating.

Apollo Global and the Rise of Private Origination

The shift in monetary policy is also rewriting the rules for alternative asset managers. Apollo Global Management has leveraged the volatility of 2025 to cement its position as a primary provider of capital, moving away from the traditional shadow banking label. As of September 30, 2025, Apollo’s assets under management (AUM) reached a staggering $908 billion, with its credit segment accounting for $723 billion of that total. This is no longer just a private equity shop; it is a global credit powerhouse competing directly with the money center banks.

Apollo’s strategy centers on direct origination. By bypassing the syndicated loan market and lending directly to investment grade companies, Apollo offers a fixed rate alternative in an environment where floating rate bank loans are becoming less attractive. During the third quarter of 2025, the firm reported record fee related earnings, driven by a 17 percent year over year surge in AUM. Under Marc Rowan’s leadership, the firm is aggressively targeting a $1 trillion AUM milestone by early 2026. The technical advantage for Apollo in a falling rate environment is its ability to lock in yields through asset backed finance and digital infrastructure deals, such as its recent multi billion dollar investments in AI data centers.

Key Economic Indicators as of December 10, 2025

The Shadow of Transition and Political Pressure

Adding to the complexity of the current market is the looming leadership change in Washington. The Trump transition team has already begun floating names to replace Jerome Powell when his term expires. Market participants are closely watching the potential nomination of Kevin Hassett or the outcome of legal battles involving Fed Governor Lisa Cook. This political overlay is creating a risk premium in the bond market. Yields on the 10 year Treasury rose slightly today despite the rate cut, as investors demand more compensation for the uncertainty surrounding the Federal Reserve’s future independence.

The Fed’s statement today included a crucial change in language, noting that the Committee will initiate purchases of shorter term Treasury securities to maintain an ample supply of reserves. This is a technical pivot intended to prevent a liquidity squeeze in the repo markets as the Treasury Department ramps up issuance to fund the projected 2026 deficit. By expanding the balance sheet while simultaneously cutting rates, the Fed is attempting a difficult double play: stimulating growth while ensuring the plumbing of the financial system remains unclogged.

As we move toward the first quarter of 2026, the primary milestone for investors will be the January 13 release of the December CPI data. This will be the first clean, non disrupted inflation report in three months. If that number does not show a further move toward 2 percent, the internal dissents we saw today could turn into a full scale policy revolt. Watch the 3.5 percent mark on the 2 year Treasury; a break below that level would suggest the market expects the Fed to lose its battle with the hawks and accelerate the easing cycle.