Federal Reserve rate cut/ interest rate reduction/ U.S. inflation update/ mortgage rates Fed/ Jerome Powell economic outlook/ WASHINGTON/ Newslooks/ J. Mansour/ Morning Edition/ The Federal Reserve is expected to cut its benchmark interest rate by 0.25%, marking a slower pace of reductions. With inflation above target and strong economic growth, borrowing costs for mortgages and loans are unlikely to drop significantly soon.
Federal Reserve Slows Rate Cuts: Quick Looks
- New Rate Level: Fed to reduce benchmark rate to about 4.3%.
- Inflation Update: Inflation at 2.3% in October, above the 2% target.
- Economic Growth: Strong retail sales signal continued consumer spending.
- Future Outlook: Fed may cut rates only two or three times in 2025.
- Trump’s Policies: Potential tax cuts and tariffs add economic uncertainty.
- Global Trends: European Central Bank also reducing rates amid lower inflation.
- Mortgage Impact: Average 30-year mortgage rates remain high at 6.6%.
Federal Reserve to Cut Key Rate Amid Economic Growth
Deep Look
The Federal Reserve is poised to announce another quarter-point reduction to its benchmark interest rate, bringing it down to approximately 4.3%. This move, expected Wednesday, reflects the Fed’s gradual retreat from the ultra-high rates aimed at combating inflation in recent years. However, with economic growth remaining robust and inflation still above target, the pace of future rate cuts is set to slow, dampening hopes for significantly lower borrowing costs.
Fed’s New Phase: Slowing Rate Cuts
After delivering a larger half-point cut in September and a quarter-point reduction in November, the Fed is signaling a shift in strategy. Policymakers are likely to reduce rates less frequently, possibly cutting at every other meeting or fewer. Projections now suggest only two to three cuts in 2025, compared to the four envisioned just three months ago.
Chair Jerome Powell recently acknowledged this cautious approach:
“Growth is definitely stronger than we thought, and inflation is coming in a little higher. We can afford to be a little more cautious as we try to find neutral.”
Inflation and Consumer Spending
Inflation has cooled significantly since its 2022 peak of 7.2%, with October’s rate standing at 2.3%. However, it remains above the Fed’s 2% target. Complicating matters, U.S. consumers continue to spend freely, as shown by strong retail sales data. This combination of persistent inflation and economic strength raises concerns that further rate cuts could overheat the economy.
Trump’s Policies Add Uncertainty
President-elect Donald Trump’s proposed policies are adding to the Fed’s cautious approach. Tax cuts on Social Security benefits, tipped income, and overtime pay could stimulate growth, while potential tariffs and mass deportations could accelerate inflation.
Powell and other Fed officials have emphasized the difficulty of making rate decisions without more clarity on Trump’s proposals and their likelihood of enactment.
Borrowing Costs Remain High
For Americans, the impact of rate cuts may be limited. The average 30-year mortgage rate remains elevated at 6.6%, down from the 2023 peak of 7.8% but far above pre-pandemic levels of roughly 3%. Credit card and auto loan rates are similarly high, reflecting the broader caution in financial markets.
Global Trends in Rate Cuts
The Fed’s cautious approach mirrors moves by other central banks worldwide. The European Central Bank recently cut its key rate for the fourth time this year, lowering it to 3% as inflation in the eurozone dropped from a 10.6% peak in 2022 to 2.3%.
Outlook for 2025 and Beyond
As the Fed’s benchmark rate approaches neutral, policymakers are likely to adopt an even slower pace of reductions. While this strategy aims to balance economic growth and inflation control, it suggests that consumers should not expect significant relief from high borrowing costs in the near term.
You must Register or Login to post a comment.