Federal Reserve Announces Rate Cuts, Forecasts Slower Reductions in 2025
The Federal Reserve announced its third consecutive interest rate cut on December 18, reducing the federal funds rate by 0.25 percentage points to a range of 4.25% to 4.5%. However, the central bank’s hawkish projections for 2025 sent shockwaves through financial markets, causing the S&P 500 to plunge 2.9% and the Dow Jones to drop 1,123 points.
Fed Chair Jerome Powell indicated that the central bank now expects only two rate cuts in 2025, down from the four cuts projected in September. This revised outlook reflects persistent inflation, which remains at 2.7% annually—above the Fed’s 2% target—and continued economic strength, with GDP growth now forecast at 2.5% for 2024.
“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate,” the FOMC statement read. Powell emphasized that while economic activity continues to expand at a solid pace, inflation “remains somewhat elevated.” The Fed’s updated projections suggest inflation won’t reach the 2% target until 2027, longer than previously anticipated.
Cleveland Fed President Beth Hammack dissented from the decision, preferring to keep rates unchanged. Market analysts now expect the Fed to pause rate cuts at its January 28-29 meeting, with approximately 91% probability of rates remaining steady according to the CME FedWatch tool. The cautious approach reflects uncertainty around President-elect Trump’s proposed policies, including tariffs and tax cuts, which could prove inflationary.
Source: Federal Reserve