The Federal Reserve has recently reduced its benchmark interest rate by 0.25 percentage points, bringing it down to a range of 4.25% to 4.5%, the lowest level in nearly two years. This marks the third consecutive rate cut in 2024, following reductions in September and November, totaling a 1 percentage point decrease since September.
The decision to lower rates is aimed at stimulating economic growth amid cooling inflation. However, the Fed has also indicated a more cautious approach for 2025, projecting only two additional rate cuts next year, down from the previously anticipated four. This adjustment reflects ongoing concerns about persistent inflation, which remains slightly above the Fed's 2% target, with consumer prices rising by 2.7% year-over-year as of November.
Fed Chair Jerome Powell emphasized the need for a balanced approach to monetary policy, aiming to support economic growth while keeping inflation in check. He noted that the economy remains strong, with resilient consumer spending despite elevated inflation.
Financial experts advise consumers, especially those with high credit card debt, to take advantage of the lower interest rates to pay down their debt more aggressively. Lower borrowing costs are also expected to stimulate consumer spending, particularly on larger purchases.
Looking ahead, the Fed plans to maintain the federal funds rate near 4% through 2026, indicating a cautious approach to ensure inflation remains under control while supporting economic growth.
