The Federal Reserve lowered its benchmark interest rate by 0.25%, marking its third consecutive reduction. This adjustment brings the target range to 4.25%-4.5%, matching levels from December 2022 when rates began rising. Despite solid economic growth and persistent inflation above target, the Fed signaled caution regarding further cuts.
Chair Jerome Powell described the policy stance as “significantly less restrictive” following a full percentage point reduction from its peak, emphasizing a slower approach ahead. Future projections suggest only two more cuts in 2025 and minor adjustments through 2027.
The Fed upgraded its 2024 GDP growth projection to 2.5% but expects a gradual slowdown in subsequent years. Inflation estimates were slightly raised, with the core rate forecast at 2.8%—still above the 2% goal.
Despite steady unemployment around 4% and robust fourth-quarter growth, the Fed aims to avoid over-tightening, wary of unnecessarily stalling the economy. Powell highlighted the importance of carefully assessing potential fiscal policy changes under the incoming administration, such as tariffs and tax cuts.
The rate cut comes amid rising mortgage rates and Treasury yields, suggesting market skepticism about the Fed’s ability to ease policy further. Additionally, adjustments were made to the ON RRP rate to maintain the fed funds rate within its target range.
Markets reacted sharply, with stocks dropping and Treasury yields soaring, underscoring ongoing economic uncertainty.
