The Federal Reserve cut its benchmark interest rate by a quarter for the third consecutive time. The Federal Open Market Committee (FOMC) voted 11-1 in favour of the decision, with Cleveland Fed President Beth Hammack dissenting, favouring to keep rates steady.
Future outlook: Moderate reductions expected by 2025
Another quarterly outlook indicated only two rate cuts in 2025, with officials predicting government rates to reach 3.75 per cent-4 per cent by the end of that year. This changes earlier expectations that there will be three reductions, reflecting price stability and fiscal resilience.
Inflation continues to be a concern
Policymakers raised inflation to 2.5 per cent by 2025, up from 2.1 per cent in September. Fed Governor Michelle Bowman warned that inflation would remain uncomfortable above the 2 per cent target, although some officials believed housing costs and other factors could slow inflation.
Labour market reforms
The labour market remains strong, with an average wage increase of 173,000 over the past three months and unemployment at 4.2 per cent. Fed President Jerome Powell noted that labour market risks have eased, although the Fed expects unemployment to remain at 4.3 per cent by 2025.
Policy language tweaked for flexibility
The FOMC made a subtle but notable change in its post-meeting comments, emphasising a more cautious approach to evaluating future policy changes. This means that further rate reduction speeds can be adjusted.
Adjustments to reverse repurchase facility
The Fed lowered the rate on its overnight reverse repurchase (RRP) facility by 30 basis points. This move aims to preempt tightening in money market rates and aligns the RRP rate with the lower bound of the federal funds target range.
Economic growth revised upward
The Fed revised its economic growth forecast for 2025, projecting a 2.1 per cent expansion, reflecting confidence in the economy’s resilience even as the central bank navigates inflationary pressures and labor market uncertainties.
Fed Chair Powell’s remarks awaited
Investors are closely watching Fed Chair Jerome Powell’s press conference for further insights into the central bank’s strategy for balancing inflation control with economic stability.
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