The Fed cut rates for the third time in a row, accumulating 100 basis points. The latest dot plot reduces the forecast for the number of rate cuts in 2025 to two.
On December 19, the Federal Reserve announced its latest interest rate resolution, cutting interest rates by 25 basis points as expected, and lowering the target range for the federal funds rate to 4.25%-4.5%. Among them, Cleveland Fed President Hammack voted against it, and she supported keeping interest rates unchanged. In its policy statement, the Fed said that in considering the magnitude and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess the latest data, the evolving outlook, and the balance of risks.
The latest dot plot shows that two rate cuts are expected in 2025, compared with September’s projection of four.
Separately, the latest summary of economic projections shows that Fed officials now expect inflation to reach the 2% target level in 2027, a delay from the previous expectation of 2026.
Full text of the Fed’s policy statement
Recent indicators suggest that economic activity continues to expand at a solid pace. Labor market conditions have generally eased since the beginning of the year, and the unemployment rate has risen but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains slightly elevated.
The Committee aims to achieve its goals of maximum employment and a long-term inflation rate of 2 percent. The Committee believes that the risks to achieving its employment and inflation goals are roughly balanced. The economic outlook is uncertain, and the Committee is closely monitoring the risks that could affect the dual-mandate objectives.
In support of these objectives, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4.25%-4.5%. In considering the magnitude and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess the latest data, the changing outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasuries, agency debt, and agency mortgage-backed securities. The Committee is firmly committed to supporting maximum employment and keeping inflation at its 2 percent target.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the impact of the latest information on the economic outlook. The Committee will be prepared to adjust the stance of monetary policy as appropriate if risks arise that could impede the achievement of the Committee’s objectives. The Committee’s assessment will take into account a wide range of information, including labor market conditions, inflationary pressures and inflation expectations, and financial and international developments.
Voting in favor of this monetary policy action were Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daley; Phillip N. Jefferson; Adrienne D. Kugler; and Christopher J. Waller. Opposing this action was Beth M. Hammack, who favored keeping the target range for the federal funds rate between 4.5 percent and 4.75 percent.
