The Federal Reserve announced on Wednesday a 25 basis point cut to the federal funds rate target range to between 4.25% and 4.50%, and anticipates that the rate cut in 2025 may narrow to 50 basis points.
This is the third consecutive rate cut by the Federal Reserve since September of this year.
The Federal Reserve stated in its announcement that the U.S. economy continues to expand steadily. Since earlier this year, the tight labor market conditions have generally eased, with the unemployment rate rising but still remaining low. The inflation rate has made progress towards the long-term target of 2%, but "remains somewhat elevated."
The statement pointed out that the risks to achieving employment and inflation goals are roughly balanced, but the economic outlook for the United States remains uncertain. When assessing an appropriate monetary policy stance, the Federal Open Market Committee (FOMC) will continue to monitor incoming information's impact on the economic outlook. If risks that could obstruct the achievement of its goals emerge, the committee will be prepared to adjust the monetary policy stance as appropriate.
According to the economic outlook forecast, 10 out of 19 FOMC members believe that by the end of 2025, the federal funds rate target range will drop to between 3.75% and 4%. Calculating with each rate cut of 25 basis points, the Fed may only cut rates twice next year, a significant slowdown compared to the four rate cuts projected in September this year.
Federal Reserve Chairman Powell stated at a press conference that as of now, the federal funds rate has been reduced by one percentage point from its peak, and the monetary policy stance has "significantly reduced restrictiveness." Therefore, when considering further policy rate adjustments, the Federal Reserve "can be more cautious."
He said that due to high inflation risks and uncertainty, the FOMC expects it is "appropriate" to slow down the pace of further policy rate adjustments next year, "consistent with more robust inflation expectations."