NEW YORK: The Federal Reserve cut interest rates on Wednesday (Dec 10) in another divided vote, but signalled it will likely pause further reductions in borrowing costs as the US central bank looks for clearer signals about the direction of the job market and inflation that “remains somewhat elevated”.
New projections issued after the Fed’s two-day meeting showed the median policymaker sees just one-quarter-percentage-point cut in 2026, the same outlook as in September, with inflation expected to slow to around 2.4 per cent by the end of next year, even as economic growth accelerates to an above-trend 2.3 per cent and the unemployment rate remains at a moderate 4.4 per cent.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data,” the rate-setting Federal Open Market Committee (FOMC) said in language that in the past has been used to signal a pause in policy actions – an outlook at odds with market expectations, which remained locked into two rate cuts next year even after the Fed issued its statement.
In a press conference following the release of the FOMC statement, Fed Chair Jerome Powell said: “I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves”.
Powell added that “monetary policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis”.
Stocks were trading mostly higher after the release of the Fed statement and projections. The dollar was weaker against a basket of currencies and Treasury yields were lower.
“It’s definitely a hawkish cut, not so much in the fact that we had two dissenters that wanted to stand pat, but if you look at the ‘dot plot’, there were six of them that pencilled in no rate cut at this meeting,” said Art Hogan, chief market strategist at B Riley Wealth.
