Fed's Third Rate Cut of 2024 Signals Slower Easing Path Ahead

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.