The Federal Reserve announced a quarter-point cut to its key interest rate on Wednesday (December 18), marking the third reduction in 2024. This move lowers the Fed’s target rate to between 4.25% and 4.5%, aiming to stabilize a steady yet cooling economy. The decision comes amid ongoing economic uncertainty, with inflation remaining somewhat elevated.
The Federal Reserve now projects only two rate cuts for 2025, down from the previously expected four. This suggests that consumers may not see significantly lower borrowing rates for mortgages, auto loans, and credit cards next year. The Fed’s decision reflects a cautious approach as it nears what is considered a “neutral” rate, which neither stimulates nor restricts the economy.
Beth Hammack, president of the Federal Reserve Bank of Cleveland, dissented from the decision, preferring to keep rates unchanged. This dissent marks the first by a Fed committee member since September. The rate cuts this year represent a shift from the previous two years of high rates, which helped control inflation but made borrowing costly for consumers.
The Fed faces challenges in achieving a “soft landing” for the economy, balancing high rates to curb inflation without triggering a recession. Inflation remains sticky, with the Fed’s preferred gauge showing annual inflation at 2.8% in October, above the central bank’s 2% target.
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