The US Federal Reserve announced a 0.25% cut to its key interest rates on Wednesday, marking the third consecutive reduction. This brings the federal funds target rate range to 4.25%–4.5% and reduces the reverse repo rate to 4.25% from 4.55%.
In a statement, the Fed emphasized that while economic activity continues to expand at a solid pace, inflation remains slightly elevated despite progress toward the 2% target. The labor market has also shown signs of easing, with a slight uptick in unemployment, though it remains historically low.
Key Highlights:
- Rate Trajectory Adjustments: The Fed now projects just two quarter-point rate cuts in 2025, down from earlier expectations of four.
- Inflation Outlook: The central bank revised its inflation forecast for 2025, increasing it from 2.1% to 2.5%.
- Policy Goals: The Fed believes risks to its employment and inflation objectives are “roughly in balance” but remains vigilant to adjust its stance as needed.
Economic Implications:
This rate cut is part of the Fed’s easing cycle, reducing rates by a full percentage point this year. It aims to support economic demand and stabilize the labor market while keeping inflation in check. The Fed expects lending rates to stabilize in the 3.75%–4% range by the end of 2025.
This move is the final policy action before President Joe Biden transitions to Donald Trump’s administration, which could bring significant economic policy shifts, including potential tariff hikes.
