The Federal Reserve (Fed) cut interest rates by 25 basis points to a range of 4.25% to 4.50%, confirming forecasts. At the same time, central bankers now predict that the central bank will proceed with only two 25 basis point interest rate cuts in 2025.
As the Monetary Policy Committee (FOMC) stated in its decision, recent data suggest that
- Economic activity in the United States has continued to expand at a solid pace.
- At the same time, labor market conditions have generally eased and the unemployment rate has increased but remains low.
- -Annual- inflation has made progress toward the Committee’s 2% objective, but remains somewhat elevated.
“The Committee seeks to achieve maximum employment and inflation of 2% over the long term. It judges that the risks to its employment and inflation objectives are roughly balanced. The economic outlook is uncertain, and the FOMC is alert to risks on both sides of its dual mandate. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasury and agency securities and mortgage-backed securities. It is firmly committed to supporting maximum employment and returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Commission would stand ready to adjust the monetary policy stance as appropriate if risks emerged that could hinder the achievement of the Commission’s objectives. The Committee’s assessments would take into account a wide range of information, including readings on labour market conditions, inflationary pressures and inflation expectations, as well as economic and international developments.”
Inflation remains high in the US – Interest rate cuts will slow down
The US Federal Reserve (Fed) is on a path to slow monetary easing as it is close to the “neutral” level (i.e., the interest rate that ensures 2% inflation and maximum employment), Fed Chairman Jerome Powell emphasized in the wake of the decision to cut interest rates by 25 bps to a range of 4.25% to 4.50%.
Speaking at a press conference after the FOMC (Fed Monetary Policy Committee) meeting, he admitted that, although (annual) inflation has eased significantly, it remains “somewhat high” compared to the Bank’s 2% target. He cited, in particular, the data for November, which were a “bell-ringer” for the Fed. “We see more risks and uncertainty around inflation,” he commented characteristically.
However, he expressed certainty that inflation will decline to near 2% levels in “a year or two.” Regarding the other important data for the American economy, Jerome Powell spoke of “strong” growth, low unemployment, and consumer spending.
Also, in anticipation of the D. Trump presidency, he reiterated that the Fed is independent while assessing that it is too early for any conclusion regarding the impact of the tariffs that the Republican wants to impose.
