What’s New
Federal Reserve officials are set to announce a quarter-point cut to its benchmark rate on Wednesday, bringing it down to roughly 4.3 percent from 4.6 percent.
However, the central bank is expected to signal a slower pace of interest rate cuts in 2025.
Why It Matters
This announcement follows a series of rate reductions, including a half-point cut in September and a quarter-point cut in November.
Fed Chair Jerome Powell and his peers have suggested the possibility of just two or three rate reductions next year instead of the previously anticipated four, which would affect American borrowers by making credit more expensive in 2025 than previously thought.
Jerome Powell speaks onstage during The New York Times Dealbook Summit 2024 at Jazz at Lincoln Center on Dec. 4, 2024 in New York City. Investors are bracing for potential volatility as the Fed’s cautious approach signals both opportunities and risks for the U.S. economy.
Eugene Gologursky/Getty Images for The New York Times
What To Know
Despite significant declines in inflation—from a high of 7.2 percent in June 2022 to 2.3 percent in October 2024—recent figures show inflation remains above the Fed’s target of two percent.
At the same time, strong consumer spending and a resilient economy have raised concerns that aggressive rate cuts could disproportionately affect inflationary pressures.
The decision to slow rate cuts also reflects the Fed’s approach to achieving a “neutral” benchmark rate—a level that neither stimulates nor restrains economic growth.
The Fed also faces uncertainty surrounding President-elect Donald Trump‘s proposed economic policies. While tax cuts and deregulation could stimulate growth, they also carry the potential to accelerate inflation by rattling the U.S. economy.
Powell has emphasized the need for more clarity on Trump’s policies before making long-term rate decisions.
Their relationship was often placed under scrutiny during the 2024 election. Despite implying on several occasions that his second term would spell weakened powers for the central bank, the Republican President-elect confirmed earlier this month he doesn’t intend on replacing Powell.
“No, I don’t think so. I don’t see it,” Trump said.
U.S. President-elect Donald Trump speaks at a news conference at Trump’s Mar-a-Lago resort on Dec. 16, 2024 in Palm Beach, Florida. The potential affect of President-elect Trump’s policies, including tax cuts and tariffs, adds layers of uncertainty to the nation’s economic outlook.
Andrew Harnik/Getty Images
What People Are Saying
Jerome Powell, Federal Reserve Chair: “We’re not quite there on inflation, but we’re making progress. We can afford to be a little more cautious.”
Christopher Waller, Fed Board Member: said he was “leaning” toward a rate cut two weeks ago ahead of the bank’s meeting. However, Waller added that if forthcoming data on inflation or hiring appears worse than the Fed expects, he might favor keeping rates unchanged.
Mary Daly, President of the Federal Reserve Bank of San Francisco: supported further lowering rates, without commenting specifically on a timetable. “Whether it’ll be in December or some time later, that’s a question we’ll have a chance to debate and discuss at our next meeting,” Daly said in an interview on Fox Business News. “But the point is, we have to keep policy moving down to accommodate the economy because we want a durable expansion with low inflation.”
What Happens Next
The Fed’s next moves will depend on a range of economic indicators.
Policymakers aim to achieve a “soft landing” for the economy, managing to lower inflation without triggering a recession. Inflation and employment data will contribute significantly to whether this happens or not.
The next Federal Reserve meeting will offer further insights into the direction of U.S. monetary policy. Until then, borrowing costs for households and businesses are unlikely to see substantial relief.
This article includes reporting from The Associated Press