Stubborn Inflation Jeopardizes Additional Interest Rate Cuts for 2025
Fed Cut interest rates by a quarter on WednesdayAs widely expected, but set a cautious approach to lower interest rates in 2025.
The Federal Open Market Committee voted to lower the federal funds rate to a target range of 4.25% to 4.5%, its third rate cut since September. But the committee’s Economic Forecast Summary Interest rates are expected to fall by just 0.5% in 2025. After its September meeting, the committee expected rates to fall a full percentage point next year.
Fed Chairman Jerome Powell said an important reason for the committee’s withdrawal was that progress in fighting inflation this year has been slower than expected.
“The single biggest factor is that inflation is again lower than expected,” Powell said at a news conference after the meeting. “I think it is appropriate from now on to err on the side of caution and look for progress on inflation.”
The Federal Reserve began raising interest rates in the spring of 2022 in response to soaring inflation. Interest rates have been at historically high levels for nearly a year, making borrowing and financing more expensive for consumers and businesses.
High inflation means you pay more for everything, including food and housing. High interest rates make it harder for people to afford loans or credit.
Determining monetary policy is a fragile balancing act that takes into account inflation and the labor market. One of the risks the Fed faces by keeping interest rates high is an excessive slowdown in the economy, as evidenced by rising unemployment.
Inflation has risen slightly since September and is further away from the central bank’s 2% target. If the economy heats up again, especially given potential inflationary pressures Economic policies for the next governmentNext year, the Fed may try to put the brakes on the economy by cutting rates even further, and possibly even raising rates again.
