Federal Reserve Cuts Interest Rates, Signals Slower Easing Ahead Amid Inflation Concerns

On December 18, 2024, the Federal Reserve reduced its key interest rate by 0.25 percentage points, setting it at a range of 4.25% to 4.5%, the lowest since February 2023. This marks the third rate cut this year, aimed at mitigating persistent inflation. 

Despite this reduction, the Fed signaled a more gradual approach to future rate cuts, projecting only two additional cuts in 2025, down from the four anticipated earlier. This adjustment reflects ongoing concerns about inflation and a robust job market.

The announcement led to a significant downturn in the stock market, with the Dow Jones Industrial Average dropping over 1,100 points, or 2.6%. The S&P 500 and Nasdaq composite also fell by 2.9% and 3.6%, respectively.

Federal Reserve Chair Jerome Powell emphasized the need for caution in future rate adjustments, stating that more progress in reducing inflation is necessary before considering further cuts. The Fed aims to achieve a “soft landing” for the economy, balancing efforts to lower inflation without triggering a recession.