The Federal Reserve on Wednesday announced its third consecutive interest rate cut in 2024, cutting its benchmark rate by 0.25 percentage points amid cooling inflation. The central bank has now cut rates by 1 percentage point since September, offering relief to Americans carrying credit card balances and other debt.
The Fed cut the federal funds rate (the interest rate banks charge each other for short-term loans) to a range of 4.25% to 4.5%, below its target range previous 4.5% to 4.75%. The decision comes after policymakers cut rates 0.5 percentage points in Septemberfollowed by a Fall of 0.25 percentage points in november
Meanwhile, the Fed expects just two rate cuts in 2025, down from the four it forecast in September when it last released economic projections. The central bank now expects the federal funds rate to average 3.9% by the end of 2025, up from its previous forecast of 3.4%.
“Although the Fed chose to round out the year with a third straight cut, its New Year’s resolution appears to be for a more gradual pace of easing,” said Whitney Watson, co-head of global and co -Director of Fixed Income Investments and Liquidity Solutions at Goldman Sachs Asset Management, in an email. “We expect the Fed to choose to skip a January rate cut, before resuming its easing cycle in March.”
Wednesday’s move marks the Fed’s final decision on interest rates before President-elect Donald Trump’s inauguration on January 20. Although price increases have cooled since the June 2022 peak, opening the door to Fed rate cuts this year, inflation has remained sticky and well above the annual target of the 2% Fed.
Consumer prices rose in November 2.7% annuallyfueled by high housing and food costs. Given this stubborn inflation, many analysts think the Fed is likely to make fewer rate cuts in 2025 amid concerns it could cause the economy to overheat.
Still, the Fed has so far defied warnings from forecasters that its rate hikes could trigger a recession.
The Fed’s first rate meeting of 2025 is scheduled for January 28-29, or after Trump takes office. About eight in 10 economists expect the Fed to hold rates steady at this meeting, according to financial data firm FactSet.
—This is a developing story and will be updated.