Fed Cuts Key Rate Again, Eyes Fewer Cuts in 2025

The Federal Reserve chopped another quarter-point off its prime interest rates after its board meeting Wednesday.

But Americans probably shouldn’t get used to it.

The quarter-point cut is the Fed’s third cut this year – but it indicated that, with inflation still elevated, it expects to reduce rates slower next year.

While the Fed’s board had said in September they expected four rate cuts in 2025, commissioners Wednesday projected that they will cut the rate just twice next year. Their new quarterly projections suggest that consumers may not enjoy much lower rates next year for mortgages, auto loans, credit cards and other forms of borrowing, according to a report from The Associated Press.

Their benchmark rate stands at 4.3% after Wednesday’s move, which followed a steep half-point reduction in September and quarter-point cut  month.

The Fed’s first cut in September followed more than two years of high rates, which largely helped tame inflation but also made borrowing painfully expensive for American consumers.

As the Fed tries to create a “soft landing” for the U.S. economy, there are challenges, not the least of which is a still-troubling inflation rate. Annual inflation was 2.8% in October, the same as in March and still stubbornly remaining above the central bank’s 2% target.

At the same time, the economy is growing briskly, which suggests that higher rates haven’t much restrained the economy, according to the AP report. As a result, some economists – and some Fed officials – have argued that borrowing rates shouldn’t be reduced much more for fear of overheating the economy and re-igniting inflation.

The unemployment rate, while still low at 4.2%, has risen nearly a full percentage point in the past two years. Concern over rising unemployment contributed to the Fed’s decision in September to cut its key rate by a larger-than-usual half point.

Chair Jerome Powell and other Fed officials have said they can’t determine how President-elect Donald Trump’s policies might affect the economy or their own rate decisions until more details are made available.

“I’ve got the least amount of conviction about what will happen with the economy over the next 12 months than I’ve had in years,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale, told the AP. “This is going to be a work in progress as things evolve.”

Beth Hammack, president of the Federal Reserve Bank of Cleveland, dissented from Wednesday’s Fed decision because she preferred to keep rates unchanged. It was the first dissent by a Fed committee member since September, according to the AP.

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Brad Kadrich
Brad Kadrich is an award-winning journalist with more than 30 years’ experience, most recently as an editor/content coach for the Observer & Eccentric Newspapers and Hometown Life, managing 10 newspapers in Wayne and Oakland counties. He was born in Detroit, grew up in Warren and spent 15 years in the U.S. Air Force, primarily producing base newspapers and running media and community relations operations.