The Federal Reserve announced a 25-basis-point cut to the federal funds rate today, marking its third consecutive reduction this year. This adjustment lowers borrowing costs to the 4.25%–4.50% range, aligning with market expectations. The updated “dot plot” reveals that policymakers now anticipate only two rate cuts in 2025, totaling 50 basis points, a notable revision from the full percentage point of reductions projected in the previous quarter.
The Fed also revised its GDP growth forecasts upward, projecting 2.5% growth for 2024 (up from 2% in September) and 2.1% for 2025 (up from 2%), while maintaining the 2026 projection at 2%. Inflation forecasts, measured by the Personal Consumption Expenditures (PCE) index, have also been adjusted higher: 2.4% in 2024 (up from 2.3%), 2.5% in 2025 (up from 2.1%), and 2.1% in 2026 (up from 2%). Core PCE inflation forecasts follow a similar trend, increasing to 2.8% for 2024 (up from 2.6%), 2.5% for 2025 (up from 2.2%), and 2.2% for 2026 (up from 2%). Meanwhile, unemployment forecasts have been revised lower for 2024 (4.2% vs. 4.4%) and 2025 (4.3% vs. 4.4%), with the 2026 projection remaining steady at 4.3%.
Recent indicators suggest that economic activity continues to expand at a robust pace. Labor market conditions have eased somewhat since the start of the year, with the unemployment rate edging up but remaining historically low. Inflation has progressed toward the Federal Reserve’s 2% target but remains slightly above the desired level.
The Committee remains committed to achieving maximum employment and 2% inflation over the long term, judging the risks to these objectives as roughly balanced. While the economic outlook remains uncertain, the Committee remains vigilant to risks that could affect its dual mandate.
Future adjustments to the target range will depend on careful assessment of incoming data, economic developments, and the balance of risks. The Committee also continues to reduce its holdings of Treasury securities, agency debt, and mortgage-backed securities, underscoring its commitment to fostering maximum employment and returning inflation to its 2% target.
Factors the Federal Reserve will continue monitoring include labor market conditions, inflation pressures and expectations, and financial and international developments—when evaluating the appropriate stance of monetary policy. If risks threaten its objectives, the Committee stands ready to adjust its approach as necessary.
The monetary policy decision was supported by Jerome H. Powell (Chair), John C. Williams (Vice Chair), Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Beth M. Hammack voted against the decision, favoring the maintenance of the target range at 4.50%–4.75%.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20241218a.htm
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20241218.pdf
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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