Fed cuts interest rates for third time in a row

After a two-day meeting, in the early morning of December 19 (Vietnam time), the Fed decided to lower the reference interest rate by another 0.25 percentage points, bringing the federal funds rate to 4.25-4.5%. This is the third consecutive time the Fed has loosened monetary policy this year, bringing the total interest rate reduction to 1% since September.

"Economic activity continues to expand at a solid pace. Unemployment remains low and inflation is rising moderately," the Fed's Federal Open Market Committee (FOMC) said in a statement. They said they would carefully consider upcoming data, both the outlook and risks, in making their interest rate decision.

This raises doubts that the Fed will stop cutting interest rates at its meeting in late January 2025.

Next year, Fed officials expect only two 25 basis point rate cuts. They also raised their inflation forecast for Donald Trump’s first year in office to 2.5% from 2.1%, above the Fed’s 2% target.

Fed Chairman Jerome Powell. (Photo: Xinhua)

In an economic outlook update released after the meeting, the Fed slightly raised its 2025 US economic growth forecast to 2.1%, while expecting an unemployment rate of 4.3%.

The average inflation forecast by the end of 2025 was raised to 2.5%, from 2.1% in September 2024.

The committee's decision to adjust interest rates comes as inflation remains above target and the economy is forecast to grow at a 3.2% annual rate in the fourth quarter and unemployment hovers around 4%.

While those conditions still support a Fed rate hike or hold, officials remain wary of keeping rates too high and unnecessarily slowing the economy. Despite solid macro data, a Fed report earlier this month noted that the economy has grown “modestly” in recent weeks, with signs of cooling inflation and slowing job growth.

Chairman Jerome Powell has indicated that the rate cut is an effort to recalibrate policy as financial conditions do not need to be tightened in the current environment.

Ngoc Vy

Source: https://vtcnews.vn/fed-cat-giam-lai-suat-lan-thu-ba-lien-tiep-ar914710.html