The Federal Reserve this afternoon announced another one-quarter point cut in interest rates. The Fed noted that economic activity has continued to expand at a solid pace, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.
“Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated,” the Federal Open Market Committee (FOMC) said in a statement announcing the interest rate cut.
The FOMC emphasized that it is strongly committed to supporting maximum employment and returning inflation to its 2% objective. It hinted it would be prepared to stop cutting rates if risks emerge that could prevent the goal of 2% inflation from being reached.
The vote to go ahead with today’s interest rate cut was 11 to 1.
During a news conference after the announcement, Fed Chairman Jerome Powell said that it was likely that the Fed may slow interest rate cuts next year.
“We’re going to be looking for further progress on inflation,” Powell said. He indicated that two cuts were likely next year compared with the four since September of 2024.
Powell pointed to several factors including a feeling that the economy and economic policy both are in good places. He said that the economy grew faster in the second half of 2024 than the Fed expected and it expects economic growth will continue into next year. He said that some pwople have pointed to economic uncertainty as far as policy goes next year and any uncertainty can be a good reason to slow down when making changes in interest rates.
Powell noted that tariffs such as threatened by Donald Trump once he takes office as president could possibly increase inflation. Powell emphasized that people don’t yet know precisely what Trump’s tariff policy might be and how it would be implemented. He said the Fed sees core inflation coming down to 2.5% next year from this year’s 2.8% or 2.9%.
“The U.S. economy is performing very very well,” Powell said. “We have to stay on task though and have restrictive policy so we can get inflation down to 2%.”
