Fed Lowers Rates โฃAgain, But Inflationโ Concerns Linger
Theโ federal โคReserve (Fed) tookโฃ another step Wednesday, trimming โขits benchmark interest rate โby a quarter-point for the third consecutive time. โคThis brings the federal funds rate โคto a range ofโค 4.25% to 4.50%, aligningโข with โคmarket predictions. However, this move isn’t without its critics.
The decision wasn’t unanimous within โthe Federal Open Market Committee (FOMC). โ At least one member, Bethโ Hammack, โคpublicly voiced opposition to further rate reductions. This dissent reflects a growing unease โคamong analysts who question โขthe wisdom ofโ lowering rates given a recentโ uptick in inflation after months of โprogress โคtoward โขthe Fed’s 2%โฃ annual target.
Fed โคChair Jeromeโฃ Powell acknowledged the ongoing debate, stating, “Inflation has โขslowed significantly over the โlast two years but it remains relatively โhigh compared to our long-term objective of 2%.” He offered reassurance, though, suggesting the Fed is nearing theโ end of its rate-cutting cycle. “We are getting โvery close to the โฃneutral rate,” Powell explained, indicating a more cautious approach to future adjustments. Theโข Fed โคnow projects a Personal Consumption Expendituresโฃ (PCE) index โof 2.5% byโ the end ofโค 2025,โค with a return to โthe โฃ2% target anticipated only by the end of 2026.
Inflation’s Resurgence andโฃ Economic Outlook
Adding to the complexity, the Consumer Price Index (CPI), a key inflation measure, โrebounded inโข November, reaching 2.7% year-over-year. The PCE index, the fed’s preferred inflation gauge, is set for release โฃon December 20th. Producer pricesโค also climbed to a near two-year high in November,partly attributed to the impact of avian flu,according to the Producer Price Index (PPI).
The Fed’s revised projections anticipate only two โmore 25-basis-point rate cuts in 2025. Powell’s comments highlight the delicate balancing act: “We are getting very close to the neutral rate,” he said, referring to โthe interest rate that neitherโ stimulatesโ nor hinders economicโข growth. This cautious approach stems from the Fed’s revised inflation forecast for 2025,now at 2.5%โa notable upwardโค revision from the 2.1% projected in September.
Despite โคpersistent inflation, the Fed forecasts continued economic growth of 2.1% โin 2025, with โคunemploymentโข remaining lowโ and stable at around 4.3%. This positive outlook, however, is temperedโ by significant uncertainties.
Uncertainty and the incoming Administration
Powell โคrecently โฃnoted that the Fed “could afford toโ be a little more โคcautious” given the robust economic activity.โข governor โฃMichelle Bowman emphasizedโ thatโฃ inflation risks are โฃ”more significant” than unemployment โคconcerns. She has also suggestedโข that the neutral rateโ might beโ higherโ than โขinitially estimated, potentiallyโฃ nearโ current levels.
The upcoming economic policies โof theโข incoming administration will play a crucial role. The โpotential for โฃderegulation, immigration policy changes, tax cuts, and increased tariffs โcould significantly impact the economy, makingโ accurateโ predictions challenging. A survey ofโค 500 U.S. companies by Resume Templates revealed that โค82% anticipate price โคincreases if newโ tariffs are implemented. โ The prospect of 25% tariffsโ on goods from Canada and Mexico, โขalready โขannounced by โthe incoming โขpresident, adds to theโ uncertainty for โAmerican consumers.
Sources: Various news outlets and economic reports.