What's happened
On December 18, 2024, the Federal Reserve announced a 25 basis point interest rate cut, marking the third reduction this year. This decision aligns with market expectations amid rising inflation and a mixed economic outlook. The Fed's projections indicate potential further cuts in 2025, influenced by President-elect Trump's proposed tariffs.
Why it matters
What the papers say
According to Business Insider UK, the Federal Reserve's recent decision to cut rates aligns with market predictions, reflecting concerns over rising inflation and a mixed economic outlook. Fed Chair Jerome Powell noted the importance of a cautious approach, stating, "There's the risk that we move too quickly and undermine the progress we've made on inflation."
The NY Post highlighted that the Fed's target rate now sits between 4.25% and 4.5%, with officials acknowledging uncertainty around inflation. They stated, "Inflation has made progress toward its 2% goal but remains somewhat elevated."
In contrast, Axios pointed out that some economists argue against further rate cuts, suggesting that the current economic conditions may not warrant such actions. Diane Swonk from KPMG expressed concerns that cutting rates could backfire, stating, "Financial conditions have eased and we are on firmer footing than we were when the Fed first cut."
Overall, the differing perspectives underscore the complexity of the Fed's decision-making process as it navigates inflationary pressures and labor market dynamics.
How we got here
The Federal Reserve has been adjusting interest rates in response to fluctuating inflation and economic conditions. Following a peak inflation rate of 9% in mid-2022, the Fed has implemented several rate cuts to stimulate the economy, with the latest cut occurring on December 18, 2024.
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More on these topics
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The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the m
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Donald John Trump is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
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Jerome Hayden "Jay" Powell is the 16th Chair of the Federal Reserve, serving in that office since February 2018. He was nominated to the Fed Chair position by President Donald Trump, and confirmed by the United States Senate.
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The United States of America, commonly known as the United States or America, is a country mostly located in central North America, between Canada and Mexico.
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The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City.
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Kamala Devi Harris is an American attorney and politician who has served as the junior United States Senator from California since 2017.
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A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.
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The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S
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In economics, inflation is a general rise in the price level of an economy over a period of time.
When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power