The Fed is expected to cut rates for the third time this year.
The Federal Reserve on Wednesday announced its third rate cut, cutting the benchmark rate by 25 basis points amid economic data that showed inflation remained above the central bank’s target rate.
With a 25 basis point cut, the benchmark interest rate will remain in the range of 4.25% to 4.5%. The Fed’s move follows a 25 basis point cut in November and a larger-than-usual cut of 50 basis points at its September meeting, which was the first rate cut since March 2020 and brought it down from the 5.25% range. to 5.5% – the highest level since 2001.
The Federal Open Market Committee (FOMC), a group within the Fed responsible for setting monetary policy, in a statement that “labor market conditions have decreased, and the unemployment rate has increased but remains low” and while inflation has improved. at the 2% target, “it’s always somewhat high.”
“The Committee seeks to achieve high employment and inflation at a rate of 2 percent over time. The Committee determines that the risks to achieving its employment and inflation goals are well balanced. The economic outlook is uncertain, and the Committee is aware of the risks on both sides of its dual mandate,” the FOMC added.
One member of the FOMC, Cleveland Fed President Beth Hammack, balked at the decision to cut rates and chose to hold the rate steady between 4.5% to 4.75%.
The FOMC also released a summary of its economic projections, which indicate two rate cuts in 2025, two cuts in 2026 and one cut in 2027.
The summary shows an average federal funds rate of 4.4% at the end of 2024, before falling to 3.9% in 2025, 3.4% in 2026 and 3.1% in 2027. with medians for 2025 and 2026 each one point higher and 2027 a value of 0.2 percentage points higher.
It also projects that the personal consumption expenditures index (PCE), the Fed’s preferred inflation gauge, will end this year at 2.4% and will be 2.5% in 2025 – up from 2.1% in the previous estimate released in September. PCE will be slowing to 2.1% in 2026 before reaching 2% in 2027 and later on.
This is a developing story. Please check back for updates.
Source link
