The Federal Reserve expects fewer interest rate cuts in 2025 as inflation pressures weigh on monetary policy.
The Federal Reserve followed through on the third straight interest rate cut on Dec. 18, lowering the benchmark rate by 25 basis points to a range between 4.25 percent and 4.5 percent at the December policy meeting.
It also stated that it expects fewer interest rate cuts in 2025 as inflation pressures weigh on monetary policy.
Investors had overwhelmingly expected the U.S. central bank to cut interest rates.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated,” the Federal Open Market Committee said in a Dec. 18 statement.
Cleveland Fed President Beth Hammack was the lone dissenting vote, preferring no rate cut this month.
The post-meeting statement was little changed, although the language was altered to “extent and timing” regarding interest rate decisions.
Financial markets were more focused on updates to the Summary of Economic Projections, a quarterly survey of policy and economic activity expectations in the coming year.
Policymakers expect two half-point rate cuts in 2025, signaling a more conservative approach to loosening monetary policy. They also forecast another 50 basis points worth of rate cuts in 2026.
The median policy rate is projected to be 3.125 percent in the next three years.
The Fed projects the broader economy’s real gross domestic product growth rate to be 2.5 percent this year, up from the September estimate of 2 percent. Officials forecast the economy to grow by 2.1 percent in 2025, 2 percent in 2026, and 1.9 percent in 2027.
Unemployment will be lower than expected, coming in at 4.2 percent this year, down from the latest prediction of 4.4 percent. The jobless rate is expected to be 4.3 percent over the next three years.
By Andrew Moran
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