Federal Reserve Trims Rates Yet Anticipates Fewer Cuts in 2025
On December 18, 2024, the Federal Reserve announced its third consecutive rate cut, lowering the federal funds rate by 0.25 percentage points to a range of 4.25%-4.5%. However, the central bank has significantly revised its 2025 projections, now expecting only two cuts next year, a stark contrast to the previously forecasted four.
Fed Chair Jerome Powell described the decision as “a closer call”, but underscored the committee’s dedication to fostering maximum employment and managing inflation. This rate reduction brings borrowing costs down to levels last seen in December 2022, providing some respite to consumers grappling with credit card debt and other loans.
Markets responded adversely to the hawkish tone, with the Dow Jones Industrial Average plummeting over 1,100 points in the aftermath of the announcement. The Fed’s revised economic projections indicate that inflation is anticipated to stay elevated at 2.5% in 2025, a rise from the previous 2.1% forecast. This reflects the ongoing price pressures in the housing and food sectors.
Source: Federal Reserve