The Federal Open Market Committee cut interest rates another quarter of a point Wednesday, lowering the federal target rate to 4.25 to 4.5 percent.
It was the third straight meeting for the FOMC to cut the federal target rate, reducing it by 100 basis points from its peak of 5.25 to 5.5 percent.
Federal Reserve Chairman Jerome Powell noted the significant progress made on inflation, since mid-2022 when it peaked at more than 9 percent. The annual inflation rate in November was 2.7 percent, according to the Bureau of Labor Statistics. While policy has worked to rein in inflation, unemployment has remained low at 4.2 percent at the end of November. The labor market has cooled, adding 186,000 jobs per month in the past year.
“The economy is strong overall and has made significant progress toward our goals over the past two years,” Powell said. “The labor market has cooled from its formally overheated state and remains solid. Inflation has moved closer to our 2 percent longer-run goal. We’re committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal.”
While delivering the cut to the rate, FOMC members made their projections for 2025 through 2027, expecting rates to fall to 3.9 percent next year, 3.4 percent in 2026 and 3.1 percent in 2027. The 2025 projection was half a point above the September projection as well as 2026.
Participants lowered expectations for cuts in 2025 from four to two. Powell said the FOMC sees the need to move cautiously going forward and concentrate on getting inflation closer to 2 percent.
“We reduced our policy rate now by 100 basis points. We are significantly closer to neutral,” Powell said. “At 4.3 percent and change, we believe the policy is still meaningfully restrictive. As for additional cuts, looking for further progress on inflation as well as continued strength in the labor market. And as long as the economy and labor market are solid, we can be cautious as we consider further cuts.”
The inflation projection for 2025 was at 2.5 percent, an increase from the September projection of 2.2 percent.
Though inflation has remained persistent, Powell reiterated that the economy remains strong going into 2025.
“I think it’s pretty clear we have avoided a recession. I think growth this year has been solid,” Powell said. “The U.S. economy has been remarkable…If you look around the world, there’s a lot of slow growth and continued struggle with inflation. I feel very good about where the economy is and the performance of the economy. We want to keep that going.”
He did acknowledge the struggles with high prices that consumers continue to feel.
“I think people are feeling right now is the effect of high prices – not high inflation,” Powell said. “We understand very well that prices went up by a great deal, and people really feel that – prices of food and transportation and heating your home and things like that. There’s tremendous pain in that burst of inflation that was very global. This was everywhere in all advanced economies at the same time. Now inflation itself is way down but people are still feeling high prices. The best we can do for them, and that’s who we work for, is to get inflation back down to its target and keep it there so that people are earning, big, real wage increases, so that their wages are going up, their compensation is going up faster than inflation year upon year. That’s what will restore people’s good feeling about the economy. That’s what it will take, and that’s what we’re aiming for.”
