The US Federal Reserve made its final monetary policy decision for 2024 after a two-day meeting of the Federal Open Market Committee (FOMC). The Fed lowered its benchmark interest rate by 0.25%, bringing it to a range of 4.25% to 4.50%. This is the third consecutive rate cut, following the start of its policy easing cycle in September. This was the first time in four years when the Fed began cutting rates.
The Federal Reserve lowered its key interest rate by 0.25%. source: XIn its updated forecast, the Fed now expects only two more quarter-percentage-point rate cuts in 2025, down from the four rate cuts projected in September. The decision to slow the pace of rate cuts comes as inflation remains above the Fed’s target of 2%, though it has eased from higher levels. Fed officials will continue to monitor the economy and adjust policies based on incoming data and risks.
This decision came just before the change in the White House, with President Joe Biden leaving office and President-elect Donald Trump set to take over. Trump’s proposed economic policies, including tariff hikes and immigration changes, could influence the Fed’s future decisions. Even though inflation is easing, the Fed is careful about cutting rates too quickly because the economy is growing strong, and the job market is still healthy.
5 Key Points From US Fed Policy 2024
Interest Rate Cut by 0.25%: The Federal Reserve lowered its key interest rate by 0.25%, bringing it to a range of 4.25% to 4.50%. This is the third time in a row that the Fed has cut the interest rate. The first rate cut happened in September. This was the start of the Fed’s effort to lower rates after years of keeping them high. The goal of cutting interest rates is to make borrowing cheaper for businesses and consumers, which can help boost the economy.
Fewer Rate Cuts Expected in 2025: The Federal Reserve now expects only two more rate cuts in 2025, which is fewer than the four cuts they predicted earlier. This means that the Fed doesn’t think the economy needs as much help as before. They plan to reduce the interest rate to around 3.75% to 4% by the end of 2025. The reason for this change is that while inflation has come down, it is still above the Fed’s target of 2%. The Fed is careful about cutting rates too quickly because they want to make sure inflation is under control.
Inflation and Economic Growth Projections Raised: The Fed has updated its forecast for inflation and economic growth. They now expect inflation to be 2.5% in 2025, up from their previous forecast of 2.1%. This means that prices are expected to rise more than previously thought. At the same time, the Fed expects the economy to grow at 2.5% in 2024 and 2.1% in 2025. This shows that the economy is still growing, but at a slower pace than it has in recent years.
Changes to the Reverse Repurchase Agreement (RRP) Rate: Along with cutting interest rates, the Fed made a change to another tool it uses to manage the economy. This tool is called the Reverse Repurchase Agreement (RRP). The Fed lowered the rate on this tool to 4.25%, which is the same as the lower end of the target range for the federal funds rate. The RRP helps keep money flowing smoothly through the financial system by controlling how much cash banks have on hand. This move is meant to make sure financial markets continue to work well while the Fed reduces its balance sheet.
Stock Market Reacts to Slower Rate Cuts: The stock market didn’t react well to the Fed’s updated forecast for fewer rate cuts in 2025. After the announcement, stock prices dropped sharply. The S&P 500 had its worst performance on a Fed decision day since 2001, and the Dow Jones experienced its longest losing streak since 1974.
Investors were surprised by the Fed’s decision, as many expected more aggressive rate cuts.
