Federal Reserve Trims Rates by 0.25% Yet Hints at a Slower Reduction Pace in 2025
The Federal Reserve declared its third successive interest rate cut of 2024 on Wednesday. This move brings down the federal funds rate by 0.25 percentage points, setting it within a range of 4.25% to 4.5%. This decision is part of the central bank’s ongoing efforts to offer relief to borrowers amidst the battle against persistent inflation.
However, a significant shift in the Fed’s approach has unsettled the markets. The Fed now forecasts only two rate cuts for 2025, a decrease from the four cuts previously anticipated in September. Fed Chair Jerome Powell highlighted that this decision mirrors the “higher inflation readings we’ve had this year.” Notably, consumer prices surged 2.7% annually in November, remaining above the Fed’s 2% target.
The announcement sparked immediate market volatility. Equity markets plunged nearly 3% in the aftermath of the decision, as investors grappled with the more hawkish outlook for the coming year. Powell stated that future rate decisions will be taken on a “meeting by meeting” basis, indicating the Fed’s cautious approach amidst economic uncertainty as we move into 2025.
Source: Federal Reserve Press Release