The Fed cuts interest rates again, but more cuts are uncertain

WASHINGTON — The US central bank made another interest rate cut on Wednesday, but lowered expectations for a rate cut in the near future.

The rate reduction, the third in a row, had been widely expected, but where politicians go from here is anything but certain.

Plans for more rate cuts in 2025 have become unclear as the Fed’s progress in curbing inflation has stalled and uncertainty abounds about the impact the incoming Trump administration will have on the economy.

The Fed’s new quarter-point interest rate cut coming out of the year’s final policy meeting will give consumers a bit more relief on interest payments for credit cards, stocks and some other personal loans.

The cumulative effects of the three rate cuts since September, totaling a full percentage point, are more meaningful and could help financially strained households. More Californians have fallen behind on making debt payments this year as delinquencies on credit cards and auto loans rise, especially for California millennials (ages 28-43), according to the California Policy Lab at UC Berkeley.

However, the Fed’s recent rate cuts haven’t done much for potential home buyers and sellers. The 30-year fixed mortgage rate, while ticking down a bit this month, was most recently at 6.6% last Thursday — which is actually up from about 6% in mid-September, according to Freddie Mac. And analysts do not see mortgage interest rates falling significantly in the short term.

While Wednesday’s rate cut was expected — futures markets gave it a 95% probability before the announcement — the outlook ahead is clouded by uncertainty about what President-elect Trump might do, both on trade and fiscal policy.

Trump has talked about tax cuts and deregulation, which are likely to stimulate economic activity. But Trump has also proposed tariffs on all imports and even higher taxes on Chinese goods, which most analysts see as inflationary and a hit to economic growth.

But whether Trump will go through with his threat, and if so when and how much, remains highly uncertain.

Beyond questions about the new administration’s intentions, Fed policymakers already had reason to slow down their rate-cutting plans. The US economy and jobs, while slowing slightly, have continued to grow at a solid pace.

At the same time, consumer price inflation, which reached near double digits by the summer of 2022, has recently stopped trending down toward the Fed’s 2% target. Inflation rose a notch in November, with prices rising 2.7% from a year earlier, as consumers paid more for used cars and airfares, but also basic goods such as medical care and food bought for the home. Rising grocery prices in particular have gnawed at consumer sentiment and were seen as a key factor in Trump’s victory last November.

“I think for low- and moderate-income households, the budget struggle continues month in and month out,” said Greg McBride, financial analyst at Bankrate.com. “Inflation on daily necessities continues to be a problem.”

In September, the Fed began its latest rate-cutting program by making a large half-point cut followed by two quarter-point moves. And based on the inflation trajectory at the time, it had forecast four more smaller cuts next year.

But on Wednesday, the Fed’s updated projections showed officials expect just two quarter-point cuts in 2025 and another two the year after. And analysts say policymakers are likely to pause at their next interest rate meeting in January.

In their latest projections, most Fed officials said the U.S. economy would grow 2.1% next year, compared with 2.5% this year, up significantly from the previous September forecast. They see their preferred target for core inflation ending the year at 2.8% and at 2.5% in 2025. The nation’s unemployment rate, which was 4.2% in November, is expected to rise to 4.3% by this time next year .

Wednesday’s announcement brings the Fed’s benchmark interest rate down to a range of 4.25% to 4.5%. It is a full percentage point lower than it was in September, but is still considered to be above the so-called neutral rate, which is neither stimulating nor constraining for the economy.