Federal Reserve Announces New Interest Rate Cut and Revised Economic Projections for 2025

The Federal Reserve made a major decision on Wednesday, cutting interest rates by 0,25% to a new range of 4,25% to 4,5%. The move marks the third consecutive rate cut in 2024, reflecting a cautious response to persistent inflation concerns.

The session, characterized by divided opinions, witnessed opposition from Beth Hammack, newly appointed president of the Cleveland Fed, who spoke out against the cut, marking her second dissent on monetary policy decisions since September.

The Fed consensus now suggests an expectation of three interest rate cuts next year, a downward revision from the four cuts previously projected. This adjustment in projections reflects the central bank’s more cautious approach to emerging economic challenges.

The Fed’s updated guidance, which added the words “extent and timing” to its official statement, indicates a possible moderation in the frequency of future cuts, suggesting a more adaptive stance on the pace of monetary policy easing. In addition, the neutral rate, which is the level considered optimal for neither accelerating nor decelerating economic growth, was adjusted to 3%, a slight increase from the previous estimate of 2,9%.

Regarding economic projections, the Fed adjusted its inflation expectations for next year to 2,5%, up from the previous forecast of 2,2%. In addition, the unemployment rate is projected to fall to 4,3%, down from the previous forecast of 4,4%, while economic growth is expected to remain steady at 2,1%.

Surprisingly, despite the rate cuts that began in September, the labor market has remained robust and inflation has persisted at higher-than-desired levels, showing no clear signs of moving toward the Fed’s 2 percent target. Recent data from the Bureau of Labor Statistics indicate that the Consumer Price Index rose 2,7 percent year-over-year in November, reflecting stubbornly stable inflation.

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