The Federal Reserve delivered its third rate cut of the year on Wednesday, reducing its benchmark rate by 25 basis points to a range of 4.25%-4.5%. However, it sharply revised its outlook for 2025, halving the number of expected rate cuts, reflecting a more cautious approach toward achieving price stability amid evolving economic dynamics.

Key Highlights

• Rate Cut Details:

  • The Fed reduced rates by 25 bps, marking its third cut since September.
  • It now projects just two rate cuts in 2025, compared to four in its prior September forecast.
  • The benchmark rate is expected to reach 3.9% in 2025 and 3.1% by 2027, up from previous estimates.

• Factors Influencing Slower Easing:

  • Economic Growth: A robust second half of 2024 has bolstered confidence in economic resilience.
  • Labor Market: Lower downside risks support the Fed's dual mandate of employment and price stability.
  • Neutral Rate Adjustment: The long-term neutral rate forecast has been raised to 3%, signaling a higher endpoint for interest rate cuts.

• Inflation Challenges:

  • Persistent inflation uncertainties have tempered the Fed's willingness to adopt aggressive rate reductions.
  • Jerome Powell emphasized the balance between fostering employment and achieving the 2% inflation target.

Data-Driven Insights

• For a historical perspective on Federal Reserve decisions, explore the Economics Calendar.
• Analyze sectoral impacts with the Sector Historical Overview.

This recalibration underscores the Fed's cautious stance amid mixed economic signals, paving the way for a slower but steady path toward normalized monetary policy.