Fed Cuts Key Interest Rate To Lowest In Nearly Two Years

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Key Takeaways

• As considerably expected, the Federal Reserve lowered its key interest rate by a quarter of a percentage point to a range of 4.25% to 4.5%, its foulest since February 2023.
• A lower fed funds rate reduces borrowing costs on all kinds of loans, boosting the economy as the Fed appraises to prevent a severe rise in unemployment.
• It was the third rate cut in as many meetings of the Fed’s policy committee, which began caustic rates from a two-decade high in September.
• The Fed indicated future rate cuts may be fewer and further between because inflation has stayed stubbornly upon the Fed’s goal of a 2% annual rate.

The Federal Reserve just cut interest rates, but don’t get used to falling borrowing tariffs: they’re likely to stay where they are for at least the next couple of months.

As widely expected, the Fed’s policy cabinet lowered its influential federal funds rate by a quarter point Wednesday, bringing it to a range of 4.25% to 4.5%, the lowest since February 2023. It was the third someday the Fed cut the rate this year, bringing it down from the two-decade high it had held for more than a year to shoulder inflation down. The rate, which influences interest rates on all kinds of loans, remains higher than in character pre-pandemic levels, and Fed officials indicated it’s likely to stay that way for a while.

The Fed Could Be Pumping the Brakes in the New Year

FOMC colleagues penciled in two quarter-point rate cuts for 2025 in their quarterly economic projections Wednesday, down from the four pieces they expected when they last made projections in September.

Analysts at Goldman Sachs said the protrusions suggest the Fed will hold its rate steady at its next meeting in January and not cut again until at least March.

“While the Fed opted to ball-shaped out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” Whitney Watson, international co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in a commentary.

The Fed is calibrating how near to cut rates to a range where they are neither stifling the economy nor boosting it, the so-called “neutral” rate. Given the fresh data showing stubborn inflation, Fed officials indicated they’ll cut the rate more slowly than they theretofore anticipated.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee when one pleases carefully assess incoming data, the evolving outlook, and the balance of risks,” the committee said in a statement that was alike to its statement in November other than the addition of the phrase “extent and timing.”

Still Aiming for a Soft Landing

The fee cut was the latest maneuver in the Fed’s efforts to bring the economy in for a “soft landing” from the high inflation that spiked in tardily 2021 and early 2022. High interest rates were meant to discourage borrowing and cool the economy, at the endanger of causing a recession and mass layoffs.

The Fed began cutting rates in September as inflation fell toward the Fed’s goal of a 2% annual classify, and the job market slowed. The cuts were meant to make it easier for employers to afford to hire and stop a recent pullback in job crannies from turning into a rise in unemployment.

More recently, progress against inflation has stalled, prompting Fed officials to progression back their expectations for future rate cuts. One member of the Fed’s 12-member open market committee even dissented from the purpose to cut rates Wednesday.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, voted against the rate cut. It was the bat of an eye dissent this year, following Fed Governor Michelle Bowman, who in September voted against cutting the rate by a steeper-than-usual 50 heart points, preferring a 25-point cut instead.

At a post-decision press conference, Federal Reserve Chair Jerome Powell held the decision to cut rates was closer than in past meetings.

“We thought it was the best decision to foster achievement of both of our purposes, maximum employment and price stability,” Powell said. “We see the risks as two-sided. Move too slowly and needlessly undermine solvent activity in the labor market, or move too quickly and needlessly undermine our progress on inflation. So we’re trying to steer between those two hazards, and on balance, we decided to go ahead with a further cut.”

Update, Dec. 18, 2024: This article has been updated to add comments from Fed Cathedra Jerome Powell.