The Federal Reserve lowered its key interest rate for the third time this year but anticipates a slower reduction pace in 2025 due to lingering inflation. The central bank projects two quarter-point rate cuts in 2025, compared to the previous forecast of four. This cautious approach reflects the Fed's efforts to achieve a 'soft landing' – taming inflation without triggering a recession.
Updated: 47 seconds ago Fed eral Reserve chair Jerome Powell speaks at the DealBook Summit in New York, Wednesday, Dec. 4, 2024.
Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as “neutral” — the level that is thought to neither spur nor hinder the economy. Wednesday’s projections suggest that policymakers may think they are not very far from that level. Their benchmark rate stands at 4.3% after Wednesday’s move, which followed a steep half-point reduction in September and quarter-point cut last month.
At the same time, the economy is growing briskly, which suggests that higher rates haven’t much restrained the economy. As a result, some economists — and some Fed officials — have argued that borrowing rates shouldn’t be reduced much more for fear of overheating the economy and re-igniting inflation. On the other hand, the pace of hiring has cooled significantly since 2024 began, a potential worry because one of the Fed’s mandates is to achieve maximum employment.
“I’ve got the least amount of conviction about what will happen with the economy over the next 12 months than I’ve had in years,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “This is going to be a work in progress as things evolve.”
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