Fed Cuts Key Interest Rate To Lowest In Nearly Two Years | Global News Avenue

The Fed just cut interest rates, but it’s not used to falling borrowing costs yet: Rates are likely to remain unchanged for at least the next few months.

As widely expected, the Fed’s policy committee reduced its influence federal funds rate It rose a quarter of a percentage point on Wednesday to a range of 4.25% to 4.5%, its lowest level since February 2023. It was the Fed’s third rate cut this year, taking rates down from two-decade highs they have held for more than a year in an effort to tamp down inflation. The rate, which affects interest rates on a variety of loans, remains above typical pre-pandemic levels, and Fed officials have said that is likely to remain that way for some time.

The Fed may hit the brakes in the new year

Members of the Federal Open Market Committee (FOMC) on Wednesday projected two interest rate cuts in 2025 in their quarterly economic forecasts, down from the four they expected when they last forecast in September.

Goldman Sachs analysts said forecasts suggest the Fed will keep rates on hold at its next meeting in January and won’t cut rates again until at least March.

Whitney Watson, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said: “While the Fed chose to end the year with a third consecutive rate cut, its New Year’s resolution appears to be to take a more gradual approach. Loose pace.” , said in the comments.

The Fed is adjusting the pace of rate cuts to a range that will neither suppress nor boost the economy, a so-called “rate cut.” “neutral” rate. With recent data showing stubborn inflation, Fed officials said they would cut interest rates more slowly than previously expected.

“In considering the extent and timing of additional adjustments to the federal funds rate target range, the Committee will carefully evaluate incoming data, the evolving outlook, and the balance of risks,” the committee said in a statement in November. Except for the addition of the phrase “scope and timing.”

Still aiming for a soft landing

The rate cut is the latest move by the Fed in its efforts to provide a “soft landing” for the economy from the high inflation that surged in late 2021 and early 2022. The purpose of high interest rates is to discourage borrowing and cool the economy. Risks of economic recession and mass layoffs.

The Fed began cutting interest rates in September as inflation fell toward the Fed’s 2% annual target and the job market slowed. The job cuts are intended to make recruitment more affordable for employers and stop the recent decline in job vacancies from increasing unemployment.

recent, Progress against inflation stallsprompting Fed officials to scale back their expectations for future interest rate cuts. One member of the Fed’s 12-member Open Market Committee even expressed disapproval of Wednesday’s decision to cut interest rates.

Cleveland Fed President Beth Hammack voted against cutting interest rates. This is the second time this year that Fed Governor Michelle Bowman has dissented, after she voted in September against a 50-basis-point cut than usual, preferring a 25-basis-point cut.