The Federal Reserve just announced a 25 basis point rate cut in December, as everyone expected, but this time their rate cut seems quite 'cautious' and not so urgent.
First of all, they are still saying that employment and inflation conditions are quite good, and they want to continue to ensure that everyone has jobs. However, they are starting to consider being 'careful' when adjusting interest rates in the future, and this time some people disagreed with the rate cut, suggesting that it should remain unchanged, indicating that the Federal Reserve is not entirely united.
The most concerning dot plot shows that the Federal Reserve has raised its expectations for future interest rates. They believe that interest rates next year and the year after will be higher than previously predicted, with rates possibly reaching 3.9% next year, higher than the 3.4% predicted in September. Moreover, they expect to cut rates only twice next year and the year after, with each cut being 25 basis points, which is significantly fewer than they previously stated.
Regarding the economic situation, the Federal Reserve believes that economic growth in the next two years will be better than previously predicted, and the unemployment rate will also decrease. However, they think inflation may be somewhat higher than previously predicted.
Powell also mentioned at the press conference that they will be more cautious in adjusting interest rates in the future. If the economy continues to perform well and inflation gradually returns to the 2% target, they will take their time; but if the labor market suddenly deteriorates or inflation drops too quickly, they may cut rates more swiftly.
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