Stubborn inflation threatens further Fed rate cuts in 2025
The Federal Reserve cut rates by a quarter percent on Wednesdayas expected, but set a cautious course for lower interest rates in 2025.
The Federal Open Market Committee voted to cut the federal funds rate to a target range of 4.25 percent to 4.5 percent, marking the third rate cut since September. But to the commission summary of economic forecasts predicts rates will fall by just half a percent in 2025. After its meeting in September, the committee had set a full percentage point reduction for next year.
Fed Chairman Jerome Powell said a big reason for the committee’s withdrawal was slower-than-expected progress in fighting inflation this year.
“The biggest factor is that inflation again came in weaker than expected,” Powell said at a news conference after the meeting. “I think it’s appropriate to be cautious and look for progress on inflation from now on.”
The Fed began raising interest rates in the spring of 2022. in an effort to combat rising inflation. That left interest rates at an all-time high for nearly a year, making borrowing and financing more expensive for consumers and businesses alike.
High inflation means you pay more for everything, including food and housing. High interest rates make it difficult to obtain loans or credit.
Setting monetary policy is a delicate balancing act that requires taking inflation and the labor market into account. One of the risks the Fed faces by keeping interest rates high is slowing the economy too much, as evidenced by rising unemployment.
Inflation rates have risen slightly since September and are further away from the central bank’s 2% target. If the economy heats up, especially given the potential inflationary pressures of the economic policy of the next administrationThe Federal Reserve may try to pump the brakes by further reducing the number of rate cuts next year or even potentially raising rates again.
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