US Fed Rate Cut Highlights: Powell Cuts Rate, But Indicates Less Easing Ahead

The US Federal Reserve on Wednesday reduced its key interest rate for the third time since the pandemic, in line with expectations. The Federal Open Market Committee lowered the rate for the first time in September and then in November.

The central bank had kept its key interest rate unchanged for eight consecutive meetings until July, after raising it by 25 basis points last year, bringing the benchmark rate to a 22-year high.

Here are the key highlights from the FOMC meet and Federal Reserve Chair Powell speech and press conference:

Less Cuts Ahead

The median official has indicated a 50 basis point rate cut in 2025 to 3.9%. 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.

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Inflation Outlook Revision

The Federal Reserve officials revised the inflation outlook upward to 2.5%, compared to 2.1% previously. Even though inflation has made further progress toward the Committee's 2% objective but remains 'somewhat elevated,' the Federal Reserve said in a statement.

Powell, in his speech, said, "We see inflation as still broadly on track."

"The US economy is growing at a healthy 2.5% pace, unemployment is low, but inflation forecast is higher, and there is uncertainty," Powell said, responding to whether future rate cuts in 2025 will be larger.

Powell notes 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.

Near-Unanimous Decision

The Fed Chair said there was "broad support" for the 25 basis point rate cut. 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.

Job Data Projection

Fed officials are predicting an unemployment rate of 4.3% in 2025. In his speech on Wednesday, Powell said that the job market is still cooling, but the Fed doesn't think more cooling is needed to bring the inflation down. He further added that in the labour market, conditions remained solid, and they are now less tight than in 2019.

Powell also pointed out that the unemployment rate has moved up but remained low.

'No Clarity On Trump Tariff Impact'

Trump in November had announced that he would impose tariffs on China, Mexico, and Canada in a bid to stem the inflow of both migrants and drugs into the US. In response to the impact of this tariff policy, Powell said the US Fed has been doing "a good bit of work” on how tariffs might impact inflation. However, he said that there is a need to "see what the actual policies are, to make a more careful, thoughtful assessment of what might be the appropriate policy path."

Catch all US Fed Meeting updates here.