Federal Reserve Cuts Interest Rates by 25 Basis-point

The US Federal Reserve decided to cut interest rates for the third time in a row by 25 basis points to a range of 4.5-4.25% in line with expectations, during its last meeting in 2024.

The Federal Reserve voted in favor of cutting interest rates by a majority of 11 votes to one, with Cleveland Fed President Hammack opposed, preferring to leave interest rates unchanged.

The Fed members raised their GDP growth forecasts to 2.1% in 2025 from 2% in September, while leaving the 2026 forecast unchanged at 2%.

The committee also raised its inflation forecasts for 2025 and 2026 to 2.5% and 2.1%, respectively, from 2.1% and 2% previously.

On the other hand, the committee lowered its unemployment rate forecast for 2025 to 4.3%, but left the 2026 forecast unchanged at 4.3%.

As for interest rate expectations, the Fed expected an additional 50 basis points of rate cuts in 2025, instead of the 75 basis points previously expected, meaning only two cuts, instead of three.

The U.S. economy has proven resilient, with inflation slowing from its 2022 peak of 9.1% to 2.7% in November.

The U.S. labor market remains healthy, with unemployment at historically low levels and employers continuing to add jobs.

The unemployment rate was 4.2% in November, up from 4.1 percent in October, and is likely to end the year below the 4.4 percent level that policymakers set in their September forecast.

The U.S. economy added 227,000 nonfarm jobs last month, compared with 36,000 in October.

With inflation almost back at the Fed’s target and the labor market slowing, officials are trying to recalibrate policy to ensure that higher borrowing costs don’t unnecessarily hurt the economy, and the two rate cuts so far have been just the beginning of that process.