On Wednesday, the U.S. central bank, known as the Federal Reserve, decided to lower interest rates as expected. However, its leader, Jerome Powell, warned that any future cuts would depend on further improvements in stubborn inflation. This news surprised Wall Street, causing stocks to drop and bond yields to rise.
During a press conference, Powell explained that while inflation has started to get better since it peaked in 2022, it hasn’t improved as quickly as they hoped, especially in housing costs. He mentioned that the Fed is now considering how changes in government policies under President-elect Donald Trump might affect the economy. Additions like higher tariffs, tax cuts, and stricter immigration laws could create more inflation, which could impact how often the Fed lowers interest rates.
The Fed had already cut rates once in September and again this week, lowering the benchmark rate by a quarter percentage point. However, many experts thought there would be more cuts, but Powell’s comments suggested that might not happen. He noted that while the economy is doing well with low unemployment and growth, the path ahead is uncertain. This means the Fed will take a careful approach before making further cuts.
Now, officials expect interest rates to decrease slowly, projecting just two small cuts by the end of 2025. Despite the new lower rates, the path to reaching the Fed’s goal of 2% inflation could take until 2027. Powell emphasized that it is too early to predict how Trump’s upcoming policies will play out, and the Fed is discussing how tariffs might impact prices.
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