The US Federal Reserve has made its third consecutive interest rate cut, reducing rates by 0.25 percentage points to a range of 4.25-4.50%. This decision, while aimed at supporting economic growth amidst rising inflation, reflects a cautious stance towards future rate adjustments. Despite the ongoing economic expansion and robust labor market, inflation remains above the Fed's 2% target, causing concern and influencing a slower pace of future rate cuts.
Fed Chair Jerome Powell emphasized the gradual approach in response to persistent inflationary pressures and uncertainties surrounding economic policies. The recent rate cut was not unanimously supported, with Cleveland Fed President Beth Hammack dissenting, preferring to keep rates unchanged. This highlights the internal debate within the Fed regarding the balance between fostering employment and controlling inflation.
The US economy has shown resilience, with a solid growth trajectory and low unemployment rates, giving the Fed some leeway in maintaining high interest rates. However, the specter of President-elect Donald Trump's policies, including proposed tariffs and immigration plans, looms large, potentially exacerbating inflation and complicating monetary policy.
Looking ahead, the Fed projects only two rate cuts in 2025, with inflation expected to stabilize at 2.5%. The central bank's cautious approach underscores the delicate balancing act required in navigating economic growth and inflation control amidst political and economic uncertainties. The evolving economic landscape suggests that while the Fed remains committed to its inflation targets, the path to achieving them may be fraught with challenges.
