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The Federal Reserve Cut interest rates by a quarter percent on Wednesday.as widely expected, but set a cautious course for lower interest rates in 2025.
The Federal Open Market Committee voted to reduce the federal funds rate to a target range of 4.25% to 4.5%, marking the third rate cut since September. But the committee summary of economic projections It predicted rates would fall just half a percent in 2025. After its September meeting, the committee had forecast a full percentage point reduction for next year.
Fed Chair Jerome Powell said a big reason for the committee’s withdrawal was slower-than-expected progress in fighting inflation this year.
“The most important factor is that inflation has once again underperformed,” Powell said at a news conference after the meeting. “I think that from this moment on it is appropriate to act with caution and look for progress on inflation.”
The Federal Reserve began raising interest rates in the spring of 2022 in an effort to combat rising inflation. It left rates at an all-time high for nearly a year, making borrowing and financing more expensive for both consumers and businesses.
High inflation means you pay more for everything, including food and housing. High interest rates make it more difficult to afford loans or credit.
Determining monetary policy is a fragile balancing act that requires considering inflation and the labor market. One of the risks the Federal Reserve faces in keeping interest rates high is slowing the economy too much, as evidenced by rising unemployment.
Since September, inflation rates have risen slightly and moved away from the central bank’s 2% target. If the economy overheats, especially given potential inflationary pressures from the next administration’s economic policies, the Federal Reserve could try to apply the brakes by further reducing the number of rate cuts next year, or even potentially raising rates again.
