Federal Reserve Cuts Interest Rates Again: NPR

Federal Reserve Chairman Jerome Powell and his colleagues cut their benchmark interest rate by a quarter of a percentage point on Wednesday. It will make it cheaper to get a car loan, finance a business or have a balance on your credit card.

ANDREW CABALLERO-REYNOLDS/AFP

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ANDREW CABALLERO-REYNOLDS/AFP

The Federal Reserve cut interest rates on Wednesday, but policymakers signaled caution about further rate cuts next year in the face of stubborn inflation.

The central bank cut its benchmark interest rate by a quarter of a percentage point to a range of 4.25% to 4.5%. Prices have fallen by a full percentage point since September, making it cheaper to get a car loan, finance a business or carry a balance on your credit card.

On average, members of the Fed’s rate-setting committee expect borrowing costs to fall by another half a percentage point in 2025. That’s less than just three months ago, when they expected a full percentage point in rate cuts next year.

Cleveland Federal Reserve Bank President Beth Hammack rejected Wednesday’s rate cut, saying she would have preferred to leave rates unchanged.

While inflation has fallen sharply since reaching a four-decade high in 2022, progress on prices has slowed in recent months. The annual inflation in November was 2.7 per cent. – slightly higher than the previous month.

‘Like an MMA fighter’

Fed officials say they are determined to bring inflation down further, while acknowledging it has been a long and exhausting battle. Interest rate committee members now believe it will be 2027 before inflation falls to the Fed’s 2% target.

“I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to go away, yet it slips out of my grasp at the last minute,” Fed Governor Chris Waller said in a speech this month. “But let me assure you that submission is inevitable. Inflation is not coming out of the Octagon.”

The Labor Department’s latest inflation report showed some long-awaited progress in housing costs. Rent increases in November were the smallest in almost three and a half years. But the price of new and used cars continued to rise. And grocery prices posted their biggest increase in 22 months.

High grocery prices have been a persistent complaint and likely contributed to Donald Trump’s victory in the November election.

“I won on the border and I won on groceries,” the president-elect told NBC’s Meet the press earlier this month. “When you buy apples, when you buy bacon, when you buy eggs, they were double and triple the price over a short period of time. And I won an election based on that.”

Grocery prices have risen 22% since President Biden took office, while average wages have risen 19% during that time.

Inflation may rise under Trump 2.0

Economists warn that some of Trump’s policy proposals – including tariffs and mass deportations – could lead to higher inflation. Fed Chairman Jerome Powell has said it is too early to speculate. However, this is another reason why the central bank is cautious about further interest rate cuts.

Fed officials also feel they can afford to take time to cut rates because the labor market remains fairly stable. Unemployment rose slightly in November, but at 4.2% it is still very low by historical standards.

“The economy is sending no signals that we need to rush to cut interest rates,” Powell said in a speech last month. “The strength we currently see in the economy allows us to approach our decisions carefully.”

While the overall economy has performed well, high interest rates have been a drag on certain sectors – particularly manufacturing and the housing market. American factories have been in a crisis for most of the last two years, according to Department of Supply Management. And sales of existing homes are headed for their slowest year in nearly three decades, according to Fannie Mae.