Fed lowered its benchmark interest rate by 25 bps to 4.25–4.50%, as widely expected. However, the decision was not unanimous, with Cleveland Fed President Beth Hammack dissenting, favoring a pause in rate cuts.
The updated median economic projections reflect a more cautious approach to easing.
Fed now expects rates to fall to 3.9% by the end of 2025, equivalent to just two additional 25bps cuts, a notable shift from the 3.4% projected in September.
Rates are forecast to decline further to 3.4% by the end of 2026 and 3.1% by 2027, both revised up from 2.9%. The longer-run neutral rate was also adjusted upward from 2.9% to 3.0%, indicating that the Fed anticipates rates will reach neutrality only by 2027, underlining a much slower easing pace.
Inflation projections also revised higher, justifying the Fed’s cautious outlook. The headline PCE inflation forecast for 2025 was raised from 2.1% to 2.5%, while core PCE inflation was increased from 2.2% to 2.5%, reflecting persistent inflationary pressures that warrant a more measured approach to policy normalization.
