Fed Slows Tightening, Signals Fewer Rate Cuts ahead
WASHINGTON – The Federal Reserve announced it will halt the reduction of its asset portfolio on December 1st and signaled expectations for limited further interest rate cuts this year, as policymakers navigate economic uncertainty compounded by the ongoing government shutdown. the move marks a slowdown in the Fed’s tightening policy,initiated in 2022 to combat inflation.
The decision comes as the central bank grapples with incomplete economic data due to the government shutdown, which has frozen or delayed the release of key reports tracking the labor market, prices, spending, and other vital indicators. Despite the data limitations, policymakers recently reviewed a delayed consumer price index report showing core inflation rose in September at its slowest pace in three months, though still remaining above the Fed’s target at 3% year-over-year.
rate forecasts published last month revealed that nine of 19 policymakers anticipate no more than one additional rate reduction this year following last month’s cut, with seven preferring to hold rates steady through 2025.As 2022, the Fed has reduced its balance sheet by more than $2 trillion through the sale of Treasury bonds and mortgage-backed securities, bringing it to under $6.6 trillion – its smallest size since 2020. These asset purchases where initially made to support the economy following the pandemic, alongside reductions to near-zero benchmark interest rates.
The Fed’s actions reflect a delicate balancing act as it attempts to manage inflation and support economic growth amidst political and economic headwinds.
