The Federal Reserve’s third rate cut in 2025 has lowered the federal funds rate to 3.5%–3.75%. However, it has increased one thing: concerns about a potential recession.
Analysts warn that the current trends expose weaknesses in the US economy, with many expecting market turbulence ahead.
Experts See Warning Signs Behind Fed’s Latest Cut
The Federal Reserve cut interest rates again yesterday, marking the third reduction following similar moves in September and October. The latest decision brings the federal funds rate to its lowest level since November 2022.
In its statement, the Fed noted that overall economic activity continues to grow at a moderate pace. However, policymakers acknowledged clear signs of cooling in the labor market, including slower hiring and a slight uptick in unemployment.
“Inflation has moved up since earlier in the year and remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months,” the press release read.
Rate cuts are typically welcomed by stock and crypto markets, which tend to rally on cheaper borrowing costs. But not everyone is celebrating. Some market observers interpret the move as a warning signal.
Economist Claudia Sahm also cautioned that investors should only hope for additional rate cuts if they are willing to accept the possibility of a recession. The FOMC’s dot plot signaled just one additional cut in 2026. Notably, seven of the nineteen officials anticipate no further rate cuts in 2026.
“If the [Jerome] Powell Fed ends up doing a lot more cuts….then we probably don’t have a good economy. Be careful what you wish for,” Sahm told Fortune.
Alongside the rate cut, the central bank announced it will purchase $40 billion in Treasury bills over the next 30 days. Henrik Zeberg, Head Macro Economist at Swissblock, says this exposes underlying economic fragility.
“The truth is… The Economy is NOT well. It is rolling over – and that puts pressure on Liquidity, which is the signal the FED gets. But – FED don’t get, that the Consumer is crushed – and that it will cause the Recession,” he added.
Zeberg revealed that his economic model has been signaling a slowdown since November 2024, reinforcing his view that the US is now moving toward a recession.
Recession Indicators Flash Red as Layoffs Surge and Small Businesses Collapse
Meanwhile, more recession indicators are emerging. Job-market stress, in particular, is rising sharply. As of December 1, 2025, US employers had announced roughly 1.2 million layoffs.
“That is the highest level since the pandemic and the most since the start of the Great Recession,” FactPost stated.
An analyst stressed that when yearly job losses top 1 million, recessions often follow or are already underway.
The Kobeissi Letter reported this week that US small businesses are also facing mounting financial strain. A record 2,221 firms have filed for bankruptcy under Subchapter V so far this year. Over the past five years, bankruptcies have increased by 83%
The surge comes despite the debt cap being lowered from $7.5 million to $3 million. Even with the tighter threshold, filings have accelerated.
“The increase has been driven by persistently high borrowing costs, cautious consumer spending, and overall economic uncertainty, which have weighed on small business earnings. US small business bankruptcies are surging as if there is a recession,” The Kobeissi Letter commented.
With many recession signals flashing, the US economy faces significant tests. While rate cuts can offer short-term relief, deeper economic weakness may test risk assets.
For crypto investors, the key question is whether Bitcoin and other digital assets behave as safe havens or fall in line with broader risk-off trends as the outlook deteriorates.
