US Fed cuts interest rates but expresses caution for the year ahead. business and economy news
Slow progress on inflation translates into a slow pace of rate cuts, especially as economic growth accelerates.
The United States Federal Reserve has cut interest rates, but has indicated that it will slow the pace of further declines in borrowing costs, given the relatively stable unemployment rate and a slight recent improvement in inflation.
“Economic activity continues to expand at a solid pace,” the central bank’s rate-setting Federal Open Market Committee said in its latest policy statement on Wednesday, with the unemployment rate “remaining low” and inflation “remaining somewhat elevated.” Is”.
“When considering the extent and timing of additional adjustments to the target range… the Committee will carefully assess incoming data, emerging perspectives, and the balance of risks,” the new language says. Meeting of 28-29 January.
US central bankers now estimate they will make only two quarter-percentage-point rate cuts by the end of 2025.
That’s half a percentage point less than officials estimated in September in terms of policy easing next year. The Fed’s inflation forecast for the first year of the new Trump administration has increased to 2.5 percent from their earlier estimate of 2.1 percent – which is central to Well above the level. Bank’s 2 percent target.
“From this point forward, it is appropriate to proceed cautiously and look for progress on inflation … From now on, we are in a place where the risks are in balance,” Fed Chairman Jerome Powell told a reporter after the central bank’s close. Said at the conference. two day policy meeting
Powell described the latest rate cut as a “close call” and said the slower pace of rate cuts projected next year reflects higher inflation readings in 2024.
Slow progress on inflation, which does not appear to return to the 2 percent target until 2027, translates into a slow pace of rate cuts.
Fed officials also raised their estimate of the long-term neutral interest rate – the level that is believed to neither boost nor hinder the economy – to 3 percent.
The cut in the benchmark policy rate from 4.25 percent to 4.5 percent was opposed by Federal Reserve Bank of Cleveland President Beth Hammack, who preferred to leave the policy rate unchanged.
“Although the Fed has opted to finish the year with its third consecutive rate cut, its New Year’s resolution appears to be to gradually ease off,” said Whitney Watson, global co-head of fixed income and co-chief investment officer. It happens.” Liquidity solutions for Goldman Sachs Asset Management. “We expect the Fed to opt to abandon rate cuts in January before resuming its easing cycle in March,” Watson said.
trump uncertainty
The new policy rate is now one percentage point lower than the peak reached in September, when officials concluded that inflation was returning to the 2 percent target and there were risks to the job market from keeping monetary policy tight for too long.
However, key measures of inflation have since moved largely sideways, while low unemployment and stronger-than-expected economic growth have sparked debate among policymakers over whether monetary policy is as tight as thought. .
The latest quarterly estimate is the first since President-elect Donald Trump’s victory in the Nov. 5 election, which has introduced a new level of uncertainty into the economic outlook given his campaign promises of tax cuts, tariff hikes and a crackdown on unauthorized immigration. Which analysts consider inflationary.
Trump won’t take office until Jan. 20, and Fed officials have said they can’t base monetary policy on campaign proposals that may or may not be enacted.
Still, Fed staffers are likely considering a variety of scenarios, and policymakers’ projections show growth potential next year will remain above 2.1 percent, inflation will remain above target for the next two years, and the unemployment rate will remain at an all-time high. Will also not increase above 4.3 percent.
