US Federal Reserve Cuts Interest Rate For Third Consecutive Time By 25 Basis Points To 4.25%

The US Federal Reserve on Wednesday cut its benchmark interest rate for the third time in a row, continuing its strategy of addressing inflation and supporting economic growth.

The Federal Open Market Committee reduced the federal funds rate target by 25 basis points to between 4.25% and 4.50% at the conclusion of its two-day meeting.

The US FOMC decision was not unnanimous. Jerome Powell and ten other members voted for the quarter-point cut, while voting against the action was Beth M. Hammack, who preferred to maintain the current target range.

The FOMC statement told US labour market conditions have "generally eased" since earlier in the year, and the unemployment rate has moved up but remains low. "Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated."

The Jerome Powell-led committee seeks to achieve maximum employment and inflation goals "roughly in balance," even as the economic outlook looks uncertain.

FOMC Median Forecast showed a 50 basis points rate cuts in 2025 to 3.9%. In addition, the forecast for inflation in 2025 rises to 2.5% versus 2.1%.

In November, the FOMC lowered the rate by 25 basis points to a range of 4.50%-4.75%, marking its second cut in over four years. The Fed in September had cut the rate by 50 basis points to a range of 4.75%-5%.

The central bank had maintained its key interest rate unchanged for eight consecutive meetings until July, when it increased the rate by 25 basis points, reaching a 22-year high.

The US central bank will meet again on Jan. 28-29; this will be the first meeting after Donald Trump takes charge as US President.

While the FOMC Median Forecast showed a 50-basis-point rate cut in 2025, Chair Powell in the press conference pointed out that one percentage point cut this year has helped support the economy.

"The one percentage point in cuts this year shows that the US Fed has done a lot to support the economy," Powell said, adding policymakers now want to see progress on inflation before reducing rates further.

He added that the US economy is growing at a healthy 2.5% pace, but the unemployment is low and the inflation forecast is higher. Powell also noted that there were two months of higher inflation, for September and October, which were a 'large factor' and perhaps the single biggest factor behind the higher trajectory for inflation forecasts released on Wednesday.