The Federal Reserve's Federal Open Market Committee (FOMC) decided on December 18 to reduce the federal funds rate target by 25 basis points, moving it to a range of 4.25 percent to 4.5 percent. This adjustment follows previous reductions of 25 basis points in November and 50 basis points in September, making it the third interest rate cut within four months.
Despite what would typically be seen as a dovish move, this action is being characterized as hawkish due to its implications for future interest rates in 2025 rather than current levels. The FOMC's recent quarterly economic projections suggest a total of 50 basis points reduction next year. This contrasts with earlier expectations from September that indicated potential cuts totaling 100 basis points.
These tempered expectations for policy easing are further emphasized by the FOMC statement accompanying the rate decision and comments from Fed Chair Powell during his press conference. Both signal caution against anticipating rapid rate cuts amid growing concerns about inflation.
The Fed's latest projection for core consumer inflation indicates a rise of 2.5 percent from the fourth quarter of 2024 to the fourth quarter of 2025. While this represents a decrease in inflation compared to current levels, it remains significantly higher than forecasts made just one quarter ago.