Federal Reserve on Wednesday announced The third consecutive interest rate cut in 2024, reducing its benchmark rate by 0.25 percentage points amid a decline in inflation. Yet in a blow to borrowers, the central bank also estimated it would ease rates less than previously expected next year.
The Fed lowered the federal funds rate – the interest rate banks charge each other for short-term loans – to a range of 4.25% to 4.5%, below its previous target range of 4.5% to 4.75%. . The decision comes after policy makers cut rates 0.5 percentage points in Septemberafter that a 0.25 percentage point decline in November.
The Fed has now cut rates by 1 percent through September, giving Americans relief from carrying credit card balances other loans,
Less rate cuts in 2025
Also, the Fed now plans only two rate cuts in 2025, down from the four it projected when it last released economic projections in September. The central bank is now estimating that the federal funds rate could remain at an average level of 3.9% through the end of 2025, up from its earlier forecast of 3.4%.
The Fed also estimates that inflation could be 2.5% in 2025, higher than it expected in September, when it predicted price growth would slow to 2.1% next year.
Wall Street fell in afternoon trading Wednesday, with the S&P 500 closing down 178 points, or 2.9%, and the Dow Jones Industrial Average falling 1,123 points, 2.2%. The tech-heavy Nasdaq Composite Index fell even more sharply on the day, slipping 716 points, 3.6%.
“The market is forward-looking and ignored the good news from today's rate cut and instead focused on the lack of a rate cut for next year,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in an email. ” ,[T]The market was overwhelmed by the potential future path of interest rates.”
Speaking at a Wednesday press conference, Federal Reserve Chairman Jerome Powell acknowledged that progress in bringing inflation down to the central bank's 2% annual rate target has been slower than expected, with consumer prices rising in November. 2.7% on annual basisDriven by increased costs of housing and food.
“I would say today was a close decision, but we decided it was the right decision to cut rates,” Powell said of Wednesday's rate cut. “The slow pace of cuts for next year reflects our higher inflation readings this year.”
Whitney Watson, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management and co-chief investment officer, said in an email that the Fed is likely to forego a rate cut in January while resuming easing at its March meeting. Can choose.
“Although the Fed chose to end the year with a third consecutive rate cut, the New Year's resolution appears to be to gradually reduce the pace of cuts,” Watson said.
new monetary policy phase
Jack McIntyre, portfolio manager at Brandywine Global, said in an email that the rate cut, which was expected, was the “least important component” of today's Fed meeting. Instead, Wall Street was focused on the Fed's forecasts for 2025 and beyond, with the central bank's new forecasts indicating that the Fed has entered “a new phase of monetary policy, the pause phase,” McIntyre said.
Wednesday's move marks the Fed's final interest rate decision before the Jan. 20 inauguration of President-elect Donald Trump. While price increases have slowed from the June 2022 peak, opening the door to a Fed rate cut this year, inflation remains stable and well above the Fed's 2% annual target.
Given that inflation has been steady this year, many analysts have predicted the Fed could cut rates as early as 2025 amid concerns it could lead to the economy overheating.
Still, the Fed has so far rejected forecasters' warnings that its rate hikes could trigger a recession.
The Fed's first rates meeting of 2025 is scheduled for Jan. 28-29 or after Trump's inauguration. Nearly eight in 10 economists expect the Fed to keep rates steady at that meeting, according to financial data firm FactSet.
Powell's optimistic economic outlook
While Powell said the slow progress in reducing inflation has been “a little disappointing”, he also commented optimistically about the US economy, emphasizing that the country's growth has far outpaced other developed economies.
“It's absolutely clear that we have avoided a recession – growth this year has been solid,” Powell said. “Again, the US economy has been remarkable,” while other countries have faced slow growth and “struggles with inflation.”
He added, “I'm looking forward to another good year next year.”
As for Trump's announced plan to impose broad-based tariffs, which many economists predict could prove inflationary if implemented, Powell said the Fed would wait and see. Is adopting the approach. Powell said the Fed is examining the potential impact from the tariffs, but it would take “much longer” for the central bank to examine policies implemented by a second Trump administration.
“We don't know the actual policies at all – we don't know how much tariffs will be imposed on which countries,” he said. “We don't know if retaliatory charges will be imposed.”