The Federal Reserve lowered its benchmark lending rate for the third meeting in a row Wednesday, but trimmed its forecast for further reductions into 2025 amid what it called "elevated" inflation risks in the firmly resilient economy.
The Federal Open Market Committee, which sets monetary policy for the central bank, lowered its key lending rate by 25 basis points, or 0.25 percentage point, to between 4.25% and 4.5%.
The move, the third rate cut in succession, followed the central bank's two-day policy meeting in Washington and marks a full percentage point reduction since the Fed began cutting in September.
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," the Fed said in its official statement.
"The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."
The Fed also published its final Summary of Economic Projections report for the year, a collection of growth and inflation forecasts from officials that will guide its policy path over the next three years.
The so-called dot plots suggest two rate cuts in 2025, with an end-of-year Federal Funds Rate of 3.9%, up from its September projection of 3.4%
In fact, the Fed now sees PCE inflation, its preferred gauge, rising to 2.5% by the end of next year, well ahead of its September forecast of 2.1%.
Stocks, bonds, and currencies react to Fed's words interest rate cuts
U.S. stocks pared gains following the Fed statement, with the S&P 500 last marked 43 points, or 0.71%, lower on the session.
The tech-focused Nasdaq, meanwhile, fell 165 points, or 0.82%, while the Dow was last marked 232 points to the downside.
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Benchmark 10-year Treasury note yields rose 6 basis points to 4.4354% while 2-year notes added 11 basis points to change hands at 4.318%.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.65% higher at 107.645.
Markets reset bets for more interest rate cuts in 2025
The CME Group's FedWatch suggests the first rate cut of the year will likely come in May, compared to a 65% chance of a rate cut in March prior to today's Fed meeting.
"In being arguably late to cut in the first place, the Fed is also perceived to be playing a degree of catch up," said Lindsay James, investment strategist at Quilter Investors:
"However, investors had been braced for a more hawkish tone going into 2025, and that too has materialised," she added. "Potential inflationary pressures ahead including Trump’s tariffs, immigration controls and personal and corporate tax cuts are expected to see a shallower path of easing in future months."
Economic data heading into the Fed's final meeting of the year have been consistently solid, even with an unexpected downturn in manufacturing activity over the month of November.
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The Atlanta Fed's GDPNow tracker suggests the economy is growing at a better-than-expected 3.1% clip heading into the year's final weeks. At the same time, the Commerce Department's CPI inflation report for November showed core price pressures holding at 3.3%.
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November also produced a stronger-than-expected overall labor market reading, with 227,000 new hires and an employment rate of 4.2%.
Consumer spending was also solid, with November retail sales rising by a stronger-than-expected 0.7% to around $725 billion and data analysts reporting record sales and travel over the Thanksgiving holiday weekend.
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