The Fed sees only two rate cuts in 2025, fewer than previously projected

The Fed sees only two rate cuts in 2025, fewer than previously projected


U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., November 7, 2024. 
Annabelle Gordon | Reuters

The Federal Reserve on Wednesday projected only two quarter-point rate cuts in 2025, fewer than previously forecast, according to the central bank’s medium projection for interest rates.

The so-called dot-plot, which indicates individual members’ expectations for rates, showed officials see their benchmark lending rate falling to 3.9% by the end of 2025, equivalent to a target range of 3.75% to 4%.The Fed had previously projected four quarter-point cuts, or a full percentage point reduction, in 2025, at a meeting in September.

At the Fed’s last policy meeting of the year on Wednesday , the committee cut its overnight borrowing rate to a target range of 4.25%-4.5%.

A total of 14 of 19 officials penciled in two quarter-point rate cuts or less in 2025. Only five members projected more than two rate cuts next year.

Assuming quarter-point increments, officials are indicating two more cuts in 2026 and another in 2027. Over the longer term, the committee sees the “neutral” funds rate at 3%, 0.1 percentage point higher than the September update, a level that has gradually drifted higher this year. 

Here are the Fed’s latest targets from 19 FOMC members, both voters and nonvoters:

The projections also showed slightly higher expectations for inflation. Projections for headline and core inflation according to the Fed’s preferred gauge were hiked to 2.4% and 2.8%, respectively, compared to the September estimates of 2.3% and 2.6%.

The committee also pushed up its projection for full-year gross domestic product growth to 2.5%, half a percentage point higher than in September. However, in the following years, the officials expect GDP to slow down to its long-term projection of 1.8%. 

As for unemployment rate, the Fed lowered its estimate to 4.2% from 4.4% previously.

— CNBC’s Jeff Cox contributed reporting.



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