The U.S. Federal Reserve cut its benchmark interest rate by 0.25 percentage points this month and projected the rate would reach 3.4% by the end of next year, signaling only one more rate cut in 2025 amid inflation concerns tied to President Donald Trump's tariff policies.
The Fed announced Wednesday after its Federal Open Market Committee (FOMC) meeting that it decided to lower the benchmark rate to 3.50-3.75% from 3.75-4.00%. The median projection for the year-end 2025 rate was set at 3.4%, unchanged from the September meeting, implying just one 0.25 percentage point cut over the course of next year.
Regarding its dual mandate of maximum employment and 2% inflation, the Fed said it is "attentive to risks on both sides" and noted that "downside risks to employment have increased in recent months."
The Fed described inflation as "somewhat elevated" and said "uncertainty around the economic outlook remains high." It raised its 2025 economic growth forecast to 2.3%, up 0.5 percentage points from the 1.8% projected in September and 0.6 percentage points higher than this year's expected growth of 1.7%.
The unemployment rate for next year was projected at 4.4%, unchanged from September. Inflation is expected to decline to 2.4% next year from 2.9% this year.
The FOMC meeting revealed significant disagreement among the 12 voting members. Fed Governor Steven Myron, a close ally of President Trump who was appointed in September, advocated for a 0.50 percentage point cut, as he did in September and October. In contrast, Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee favored holding rates steady.
