Fed Cuts Rates, Signals Less Easing in 2025FedCutsRates,SignalsLessEasingin2025

The Federal Reserve signaled it would take a less aggressive approach to easing financial conditions in 2025 after delivering a third consecutive rate cut at the conclusion of its December meeting. Members of the central bank’s policy-setting committee voted on Wednesday to reduce the benchmark interest rate by 25 basis points. But officials also forecast that only two quarter-point cuts would be warranted next year, indicating that rates will need to remain higher than previously thought. Compared with previous estimates from September, the Fed’s updated set of economic projections showed that officials now anticipate a slower decline in the pace of inflation, coupled with stable growth and employment.

Inflation readings have been less encouraging of late. Measures of both consumer and wholesale price increases were hotter than expected in November. The Fed’s preferred inflation gauge is also forecast to tick higher on a year-over-year basis when the Commerce Department releases new data on Friday. Meanwhile, the final reading on US third-quarter growth came in at an annualized rate of 3.1%, up from a previous estimate of 2.8%, according to a report on Thursday. Given this backdrop of a resilient US economy, stubborn inflation, and rate cuts amounting to a full percentage point since September, the Fed is likely entering “a new phase” and will be “cautious about further cuts,” Chair Jay Powell said during a press conference. In a new video, PGIM Fixed Income Chief Economist Tom Porcelli discusses key highlights from the Fed meeting.