Fed cuts rates by 25bps, signals slower pace of cuts in 2025

Federal Reserve delivered a widely expected interest rate cut by 25 basis points to 4.25%-4.50% range. The Fed  also provided a hint of a more cautious approach to the future rate cut with the new forward guidance stressing the importance of a careful assessment of incoming data and risk.

The Summary of Economic Projections (SEP) showed a change in expectations for lowering next year’s rate cuts to 50 from 100 in the September forecast. The projections for 2026 and 2027 were kept unaltered with the policy rate maintained at 3.125 % which is above the newly set neutral rate at 3.00%.

At the same time, the economic forecasts were adjusted upward. Estimates of real GDP growth for this year and next were raised above 2%, and the unemployment rate was lowered. Inflation forecast was also up, core inflation is now expected to hit 2% by 2027, one year behind the previous estimate.