The Federal Reserve reduced interest rates for the third time this year, aiming to combat cooling inflation. However, the central bank indicated a slower pace of rate cuts in 2025 compared to previous projections.
The Federal Reserve on Wednesday announced its third consecutive interest rate cut of 2024, reducing its benchmark rate by 0.25 percentage points amid cooling inflation. Yet in a blow for borrowers, the central bank also projected that it will loosen rates less next year than previously expected.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%, down from its previous target range of 4.5% to 4.75%.
The decision comes after policymakers slashed rates by 0.5 percentage points in September, followed by a 0.25 percentage point drop in November. The Fed has now trimmed rates by 1 percentage point since September, offering relief to Americans carrying credit card balances and other debt.Fewer rate cuts in 2025At the same time, the Fed is now penciling in only two rate cuts in 2025, down from the four it had forecast in September when it last issued economic projections. The central bank is now projecting that the federal funds rate may sit at a median level of 3.9% by the end of 2025, up from its earlier forecast of 3.4%.The Fed is also projecting inflation could be higher in 2025, at 2.5%, than it had expected in September, when it forecast that price increases would slow to 2.1% next year.'I would say today was a closer call, but we decided it was the right call' to cut rates, Federal Reserve Chairman Jerome Powell said at a Wednesday press conference when asked about the Fed's decision. 'The slower pace of cuts for next year reflects the higher inflation readings we've had this year.'The Fed might opt to skip a rate cut in January, while resuming easing at its March meeting, said Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management, in an email. 'While the Fed opted to round out the year with a third consecutive cut, its New Year's resolution appears to be for a more gradual pace of easing,' Watson sai
FED INTEREST RATES INFLATION ECONOMY 2025
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