Federal Reserve cuts interest rates by 0.25 percentage points, its third reduction this year
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. The central bank has now trimmed rates by 1 percentage point since September, offering relief to Americans carrying credit card balances and other debt.
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.
At 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 median level of 3.9% by the end of 2025, up from its earlier forecast of 3.4%.
“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,” 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. “We expect the Fed to opt to skip a January rate cut, before resuming its easing cycle in March.”
Wednesday’s move marks the Fed’s final interest rate decision prior to President-elect Donald Trump’s Jan. 20 inauguration. While price increases have cooled from their June 2022 peak, opening the door to Fed rate cuts this year, inflation has remained sticky and well above the Fed’s 2% annual target.
Consumer prices in November rose 2.7% on a yearly basis, fueled by elevated housing and food costs. Given that stubborn inflation, many analysts think the Fed is likely to make fewer rate cuts in 2025 amid concerns that could cause the economy to overheat.
Still, the Fed has so far defied forecasters’ warnings that its rate hikes could trigger a recession.
The Fed’s first rate meeting of 2025 is scheduled for Jan. 28-29, or after Trump’s inauguration. About eight in 10 economists expect the Fed to hold rates steady at that meeting, according to financial data firm FactSet.
—This is a developing story and will be updated.
