The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, as widely expected, but set a cautious course for lower interest rates through 2025.
The Federal Open Market Committee voted to lower the federal funds rate to a target range of 4.25% to 4.5%, marking the third rate cut since September. But the committee’s summary of economic projections predicted that prices would drop by half a percent by 2025. After its September meeting, the committee penciled in a reduction in total points for next year.
The Chairman of the Fed, Jerome Powell, said that the main reason for the withdrawal of this committee is to move slower than expected in the fight against inflation this year.
“One big thing is inflation has been below expectations again,” Powell said at a press conference after the meeting. “I think from this point forward, it’s worth treading carefully and watching for progress in inflation.”
The Fed began raising interest rates in the spring of 2022 in an effort to fight inflation. It left rates at record highs for nearly a year, making borrowing and financing more expensive for consumers and businesses.
Inflation means you pay more for everything, including food and housing. High interest rates make it difficult to pay off a loan or debt.
Determining monetary policy is a delicate balancing act that needs to take into account inflation and the labor market. One risk the Fed faces by keeping interest rates high is slowing the economy too much, as evidenced by rising unemployment.
Since September, inflation has risen slightly from the central bank’s 2% target. If the economy heats up again, especially considering the potential inflationary pressures of the next administration’s economic policies, the Fed may try to apply the brakes by further reducing the number of rate cuts next year, or even raising rates again.
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