The Federal Reserve made its third cut this year when it reduced its key interest rate by a quarter-point on Wednesday. The fed also indicated that it may reduce rates more slowly than previously expected in the new year, the Associated Press reported. Even though policymakers previously estimated that they would make four rate cuts in 2025, they now expect to make only two reductions, per the AP. Officials indicated that two more cuts may be coming in 2026 and another could happen in 2027, CNBC reported.
Consumers may see lower rates for mortgages, auto loans and credit cards as a result of the new projections. Officials added that reduction rates are becoming lower as the benchmark rate inches closer to “neutral,” meaning this level will not make a significant impact on the economy one way or the other.
The feds made a half-point reduction in September, then a quarter-point cut in November. After the latest cut, the benchmark rate is at 4.3%.
“I think that a slower pace of (rate) cuts really reflects both the higher inflation readings we’ve had this year and the expectations that inflation will be higher in 2025,” Chair Jerome Powell told reporters at a news conference, per the AP. “We’re closer to the neutral rate, which is another reason to be cautious about further moves.”
As feds attempted to control inflation in the past two years, consumers saw high rates of reduction and more difficulty in borrowing. Now, the fed is waiting to see how the new policies under President-elect Donald Trump will impact the market.
“We need to take our time, not rush and make a very careful assessment, but only when we’ve actually seen what the policies are and how they’ve been implemented,” Powell said, per CNBC. “We’re just not at that stage.”
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