As expected, The Federal Reserve announced another quarter-point interest rate cut, even though inflation continues to move "sideways.”
But after announcing there would be only two cuts in 2025, the Dow tanked, closing down by 1,100 points, its tenth straight day of losses.
It's the 3rd interest rate cut of the year, and the move reduces the Fed's target rate to between 4.25% and 4.5%.
“As expected, the Federal Reserve cut interest rates for a third time since September, bringing the total rate reduction to one full percentage point. But they’ll be taking a more cautious, deliberate approach in 2025 because of inflation remaining stubbornly high" said Bankrate senior analyst, Greg McBride.
Fed Chair Jerome Powell was asked a lot of questions about next year, and offered a wait and see approach.
“Higher for longer is the mantra headed into 2025. The Fed’s quarterly projections indicate a common expectation of just two interest rate cuts for next year, a change of thinking from September when the median expectation was four rate cuts. The big change since September is explained by notable upward revisions to the Fed’s own inflation projections for 2025" McBride said.
And so what can we expect?
“A slower pace of interest rate cuts in 2025 means borrowers will have to continue doing the heavy lifting of aggressive debt repayment. Borrowing rates for variable rate debts such as credit cards and home equity lines of credit are high and won’t come down fast enough to provide meaningful relief" added McBride.