US Federal Reserve Chairman Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, US, November 7, 2024.
Annabelle Gordon Reuter
The Federal Reserve on Wednesday expected to cut interest rates only twice in 2025, fewer than previously expected, according to the central bank’s rate outlook.
A so-called dot plot showing individual members’ interest rate forecasts shows officials see the policy rate falling to 3.9% by the end of 2025, equivalent to a target range of 3.75% to 4%. . At its September meeting, it expected a four-quarter point reduction, or a full percentage point reduction, by 2025.
At its last policy meeting of the year on Wednesday, the committee lowered the overnight borrowing rate to its target range of 4.25% to 4.5%.
A total of 14 out of 19 officials decided to cut interest rates by less than a quarter of a point twice in 2025. Only five members predicted two or more rate cuts next year.
Assuming quarterly point increments, officials are hinting at two more rate cuts in 2026 and another in 2027. In the longer term, the Committee sees a “neutral” funds rate of 3%, 0.1 percentage points higher than in the September update. This year, we have gradually moved up the rankings.
Here are the latest Fed targets from the 19 FOMC members, including both voters and non-voters:
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The forecast also showed slightly higher inflation expectations. Projections for headline and core inflation from the Fed’s preferred indicators were raised to 2.4% and 2.8%, respectively, compared with 2.3% and 2.6% in September.
The committee also revised its full-year gross domestic product (GDP) growth forecast upward to 2.5%, 0.5 percentage point higher than in September. However, officials expect GDP to slow to the long-term forecast of 1.8% over the next few years.
As for the unemployment rate, the Fed lowered its forecast to 4.2% from 4.4%.
—CNBC’s Jeff Cox contributed reporting.
