The Fed is widely expected to cut interest rates for the third time this year.
The Federal Reserve on Wednesday announced its third straight interest rate cut, cutting its benchmark interest rate by 25 basis points, following economic data showing that inflation remains above the central bank's target rate.
The 25 basis point rate cut will keep the benchmark federal funds rate in the range of 4.25% to 4.5%. The Fed's actions follow a 25 basis point rate cut in November and a larger-than-usual 50 basis point rate cut at its September meeting, marking the first rate cut since March 2020 and bringing the rate cut to 5.25%. It was lowered from to 5.5% – the highest level since 2001.
The Federal Open Market Committee (FOMC), the Federal Reserve's monetary policy-making body, said in a statement that “labor market conditions have generally eased, and unemployment has risen but remains low,” and that inflation has continued to decline. He said he is doing so. “There is still a slight increase” towards the 2% target.
“The Committee aims to achieve maximum employment and inflation of 2% in the long term.The Committee judges that the risks to achieving the employment and inflation targets are approximately balanced.Economic Outlook The Committee is carefully approaching the “dual mandate, which poses risks to both sides,'' the FOMC added.
One FOMC member, Cleveland Fed President Beth Hammack, opposed the decision to cut rates, preferring to keep the benchmark rate in the range of 4.5% to 4.75%.
The FOMC also released a summary of its economic forecasts, which reflects two rate cuts in 2025, two rate cuts in 2026, and one rate cut in 2027. The FOMC previously predicted four rate cuts in 2025 in its latest forecast in September.
The summary shows that the median federal funds rate was 4.4% at the end of 2024, falling to 3.9% in 2025, 3.4% in 2026, and 3.1% in 2027. There is. These future forecasts are higher than the Fed's September forecast. The median values for 2025 and 2026 were each 0.5 points higher, and the 2027 figure was 0.2 points higher.
The Fed also projects the personal consumption expenditures (PCE) index, the Fed's preferred inflation measure, to end this year at 2.4% and reach 2.5% in 2025, up from its previous forecast of 2.1% in September. It's rising. PCE is then expected to decline to 2.1% in 2026, reach 2% in 2027, and reach that level in the long run.
“It was a tense decision to make today, but we believe it was the right decision to help us achieve both of our goals of maximum employment and price stability,'' Fed Chairman Jerome Powell said at a press conference. Ta.
“We believe the risk is two-sided: moving too slowly and unnecessarily harming economic activity and the labor market, or moving too quickly and unnecessarily harming the development of inflation. As we try to navigate between these two risks, we have decided to move forward with further reductions,'' he explained.
Powell said downside risks to the labor market have reduced, but the labor market is looser than it was before the pandemic and continues to cool, which is needed to reach the 2% inflation target. He pointed out that there was no. He also said the pace of decline in inflation had flattened out over the past year, partly due to housing services inflation falling at a slower pace than expected and some “bumps” in commodity prices. He pointed out that there was.
“We combined this decision today with the scope and timing language of the post-meeting statement that suggests we are at or near the appropriate point to slow the pace of further adjustments,” Powell said. Ta.
“We are very close to neutrality at 4.3% and believe policy remains meaningfully restrictive, but we expect further developments in inflation and continued strength in the labor market in terms of further cuts.” '' he explained. “And as long as the economy and the labor market are strong, we can be cautious in considering further cuts, and all of that is reflected…With the SEP in December, next year compares to 4 cuts in September. The median expected reduction was approximately 2.
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