Fed cuts interest rate by a quarter point

Interest rates cut: ©AaronKohr -stock.adobe.com

The Federal Reserve lowered its key interest rate by a quarter percentage point, the third consecutive reduction, while also indicating a pair of cuts in 2025 is possible.

The Federal Open Market Committee cut its overnight borrowing rate to a target range of 4.25%-4.5%, back to where it was in December 2022.

The move was widely expected by economists. The only unknown was what the bank’s view was on potential future cuts.

The two cuts indicated cut in half the committee’s intentions when the “dot plot” of committee members thoughts was last updated in September. Assuming quarter-point increments, officials indicated two more cuts in 2026 and another in 2027.

The decision was no unanimous. For the second consecutive meeting, one FOMC member dissented: Cleveland Fed President Beth Hammack wanted the Fed to maintain the previous rate. Governor Michelle Bowman voted no in November, the first time a governor voted against a rate decision since 2005.

Other changes to the Summary of Economic Projections saw the committee lower its expected unemployment rate this year to 4.2% while headline and core inflation according to the Fed’s preferred gauge also were increasing to respective estimates of 2.4% and 2.8%, higher than the September estimate and above the Fed’s 2% goal.

Inflation is currently holding above the central bank’s target but also while the economy is projected by the Atlanta Fed to grow at a 3.2% rate in the fourth quarter, with the unemployment rate around 4%.

With today’s move, the Fed has reduced benchmark rates by a full percentage point since September.