Federal Reserve officials lowered their benchmark interest rate for a third consecutive time, but reined in the number of cuts they expect in 2025, signaling greater caution over how quickly they can continue reducing borrowing costs.
The Federal Open Market Committee voted 11-1 on Wednesday to cut the federal funds rate to a range of 4.25%-4.5%. Cleveland Fed President Beth Hammack voted against the action, preferring to hold rates steady.
New quarterly forecasts showed several officials penciled in fewer rate cuts for next year than they estimated just a few months ago. They now see their benchmark rate reaching a range of 3.75% to 4% by the end of 2025, implying two quarter-percentage-point cuts, according to the median estimate.
Only five officials indicated a preference for more reductions next year.
A majority of economists in a Bloomberg survey had expected the median rate estimate would point to three cuts next year.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive,” Fed Chair Jerome Powell told reporters in a press conference following the Fed’s decision. “We can therefore be more cautious as we consider further adjustments to our policy rate.”
Nonetheless, Powell added that policy was still “meaningfully restrictive” and the committee is “on track to continue to cut.”
Policymakers also made a subtle adjustment to the language of the statement released after their meeting, saying they would assess several factors “in considering the extent and timing of additional adjustments” to the policy rate.
Previously, they merely said “in considering additional adjustments.”
Officials continued to say they see risks to inflation and the labor market as “roughly in balance.”
The S&P 500 index fell following the announcement, while U.S. Treasury yields and the Bloomberg Dollar Index rose. The two-year note’s yield, more sensitive than longer maturities to Fed policy shifts, led the move in Treasurys, rising as much as eight basis points to 4.33%, the highest level since Nov. 25.
Bumpy Inflation
Policymakers have now lowered their benchmark lending rate by a full percentage point since mid-September, when they began cuts with an aggressive half-point move. At the time, they were encouraged by falling inflation and worried the labor market was approaching a dangerous tipping point.
