Fed lowers rates, signals fewer cuts ahead in '25
Add Axios as your preferred source to
see more of our stories on Google.
Fed chair Jerome Powell at a November news conference. Photo: Andrew Caballero-Reynolds/AFP via Getty Images
The Federal Reserve cut its target interest rate by a quarter percentage point Wednesday, while releasing new projections that signal less rate-cutting is on the way in 2025 than envisioned three months ago.
Why it matters: The Fed is entering a more cautious phase after cutting rates for three straight meetings, reflecting sluggish progress in bringing inflation down.
Driving the news: The policy-setting Federal Open Market Committee reduced the target range for the federal funds rate to between 4.25% and 4.5%, which makes for a full percentage point reduction in the target since rate cuts began in September.
- However, in September, the median top Fed official projected it would be appropriate to cut rates to 3.4% by the end of 2025. Now, that median projection is 3.9%.
- That implies only two rate cuts ahead next year, not the four signaled by previous projections. Fourteen of 19 top Fed leaders believe two or fewer rate cuts are likely to be justified in 2025.
What they're saying: "Today was a closer call, but we decided it was the right call," Fed chair Jerome Powell told reporters at a press conference on Wednesday, referring to the decision to cut rates.
- "We are at or near a point at which it will be appropriate to slow the pace of further adjustments," Powell added.
The intrigue: The S&P 500 fell as much as 2% during Powell's press conference. The yield on the 10-year Treasury note jumped to just over 4.5%, the highest level in more than six months.
Between the lines: Powell said that there is more uncertainty around inflation than previously believed. "It's kind of common sense thinking that when the path is uncertain, you go a little bit slower," he said.
- "It's not unlike driving on a foggy night or walking into a dark room full of furniture, you just slow down."
By the numbers: Fed officials bumped up their projections for GDP and inflation, reflecting the evolution of economic data since September.
- The median official now expects 2.5% growth for 2024, up from 2% in September.
- But the officials now expect core inflation to be 2.8% for the year, higher than the 2.6% projected three months ago.
- The officials also increased their 2025 and 2026 inflation projections, now seeing 2.5% inflation next year (up from 2.1% in September).
What to watch: After pushing rates sharply higher in 2022 and 2023 to try to combat inflation, the Fed is now moving to adjust them to a more neutral stance, neither stimulating nor restraining the economy.
- The economy faces a complex set of tailwinds and headwinds next year. The incoming Trump administration promises deregulation, tax cuts, and a growth-friendly approach — but also tariffs and deportations that are outside the Fed's control.
- Powell said some Fed officials began to incorporate "highly conditional estimates" of the economic effects that might play out from Trump's policy in their forecasts.
Of note: Beth Hammack, who became president of the Cleveland Fed earlier this year, dissented from the decision, preferring not to cut rates at this meeting.
- In a recent speech, she favorably cited past times when the Fed has cut interest rates by three-quarters of a percentage point — as it did in the last two meetings — before then pausing to assess conditions.
Editor's Note: This story has been updated with market reactions to the Fed decision.
