US Federal Reserve Anticipates Fewer Rate Cuts 2025

The US Federal Reserve on Wednesday cut its benchmark interest rate for the third time in a row, in line with market expectations. However, the Fed anticipates fewer rate cuts next year.

The FOMC median forecast has indicated a 50 basis point rate cut in 2025 to 3.9% in comparison to 3.4% in September, according to the dot-plot chart released by the Federal Reserve on Wednesday. This indicated just two quarter-point cuts next year. That suggests 50 basis points of easing compared with 100 basis points in September (including the impact of today's rate cut).

It also showed that five of the 19 officials penciled in 75 basis points of cuts or more.

Median Fed official sees inflation rate at 2.5% by end of 2025, up from 2.1% forecast in September. The data also showed that Fed officials are tipping an unemployment rate of 4.3%.

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 unanimous. 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.

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

The US markets fell on Wednesday as Jerome Powell was talking about the Federal Reserve interest rate cut. While Nasdaq Composite saw a 1.6% to 19,788, Dow Jones fell 1.13% to 42,960. S&P 500 was also down 0.8% to 6,000.

In contrast treasury yields climbed after the cut in interest rates. The two-year note's yield led the move, rising as much as eight basis points to 4.33%, the highest level since Nov. 25.

The dollar also rallied to the strongest level in over two years after the Federal Reserve signaled a slowdown in the pace of monetary easing next year.

The Bloomberg Dollar Spot Index rose 0.6%, its highest since 2022. It advanced almost 7% so far this year, gaining against all of its peers in the developed world and on path to have the best year since 2015.

Get live updates on US Fed meeting here.