Federal Reserve Trims Rates Yet Indicates a Slower Reduction Pace for 2025
The Federal Reserve has once again reduced interest rates, this time by 0.25 percentage points on December 18. This adjustment brings the federal funds rate to a new level of 4.25%-4.5%. Notably, this constitutes the third consecutive rate cut of 2024, following the reductions in September and November. Consequently, this amounts to a full percentage point decrease since September.
However, the Fed has significantly scaled back its projections for 2025. It is currently forecasting only two rate cuts for the upcoming year, a stark contrast to the four previously anticipated in September. Fed Chair Jerome Powell has hinted that the central bank may put a pause on rate cuts in January to evaluate the economic conditions. He noted that the current rate is “in a broad range of estimates of neutral value.”
The decision is a reflection of the ongoing concerns about persistent inflation, which remains stubbornly above the Fed’s 2% target at 2.7% in November. Powell acknowledged the uncertainty surrounding potential inflationary effects from President-elect Trump’s proposed tariff policies.
Despite the cautious outlook, Powell expressed optimism about the U.S. economy. He described it as “remarkable” in comparison to global peers. Equity markets initially dipped 3% following the announcement but made a recovery by Thursday morning. The Fed’s more hawkish stance suggests a “higher for longer” interest rate environment heading into 2025.
Source: CBS News