Fed Cuts Interest Rates, but Projects Fewer Reductions in 2025

Federal Reserve officials made their third and final rate cut of 2024 at their meeting on Wednesday. They also forecast two fewer rate reductions in 2025 than they had previously expected, as inflation lingers and the economy holds up.

The Fed has come a long way from just a few years ago: In 2022, inflation was more than twice its current rate and many economists thought that the central bank’s decisions might cause economic pain — and even a recession — as it rapidly lifted interest rates to slow demand and wrestle price increases back under control.

That didn’t happen. The job market slowed without falling apart, and inflation cooled so substantially that the Fed was able to begin cutting interest rates in September.

But the Fed is now entering a new phase in its journey toward an economic soft landing — a much more uncertain one.

Officials thought that it was clear that rates needed to come down notably from their 5.3 percent peak, and they have steadily lowered them to about 4.4 percent by making three back-to-back reductions. Policymakers do not want to cut rates so much that they reignite the economy, though — and they have now arrived at a point where it is uncertain how much further rates should fall.

“Our policy stance is now significantly less restrictive,” Jerome H. Powell, the Fed chair, said during a news conference on Wednesday. “We can therefore be more cautious as we consider further adjustments to our policy rate.”