On Wednesday, the Federal Reserve decreased its key interest rate by 0.25%, marking its third rate cut of 2024. However, the central bank also indicated a slower pace of rate reductions for next year due to lingering high inflation rates.

The Fed’s 19 policymakers now forecast only two quarter-point cuts for 2025, a significant decrease from the four they had anticipated in their September projections. This adjustment hints that consumers might not see substantial relief in borrowing costs for items like mortgages, car loans, or credit card balances through interest rates in the coming year.

Fed officials have emphasized a cautious approach, aiming to reach a “neutral” rate, which is considered to balance economic growth without causing inflation or deflation. After the latest adjustment, the Fed’s benchmark rate sits at 4.3%, following a larger 0.5% cut in September and a 0.25% reduction last month.

Beth Hammack, President of the Federal Reserve Bank of Cleveland, was the lone dissenter, advocating for maintaining the current rates, marking the first such dissent since September.

The rate cuts this year represent a shift from the previous policy of higher rates aimed at controlling inflation, which had significantly increased borrowing costs for Americans. 

The Fed now faces the complex task of achieving a “soft landing” for the economy, where inflation is controlled without triggering a recession. The challenge is compounded by inflation’s persistence; the Fed’s favored measure showed annual inflation at 2.8% in October, unchanged from March and above the 2% target the central bank aims for.

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(Image generated with Grok AI)