During the last Federal Open Market Committee (FOMC) meeting of 2024, the Federal Reserve made a move that most analysts anticipated: they lowered the benchmark interest rate by 25 basis points. This adjustment caps off a year where the rates were reduced by a full percentage point.
But what really caught our attention was the Fed’s admission of the economy’s unexpected strength. They also noted the potential influences of the Trump administration’s policies, like tax cuts and tariffs, on this resilience. Consequently, the Fed revised its inflation prediction for 2025, upping it from the previous 2.1% to a more significant 2.5%.
Another key point was the shift in the Fed’s guidance regarding future rate cuts. They’ve now adjusted their expectations for the federal funds rate to finish 2025 at 3.9%, which is a 50 basis point increase from their earlier projection in September of 3.4%. This change means they’re planning for only two rate cuts in 2025, halving their initial estimate of four.
In summary, the adjustments in rate guidance and inflation forecasts are clear indicators of the Fed’s response to the economic landscape and policy impacts, setting the stage for their plans moving into the next year.
