Dec. 18 (UPI) — Federal Reserve Chairman Jerome Powell on Wednesday announced a 0.25% reduction in the Fed’s lending rate to between 4.25% and 4.5%, despite a recent uptick in inflation.
The Fed’s lending rate now stands at where it was in 2022 when the Federal Reserve began raising its lending rate to counter inflation. It is a full percentage point lower than it was a year ago.
“Inflation has eased significantly but remains elevated over our 2% goal,” Powell told news media Wednesday afternoon.
He said 12-month core inflation through November is 2.8%, down from a high of 6% two years ago, but the committee expects inflation to “remain firm” through 2025.
The Fed has the dual goals of maintaining employment while keeping inflation in check, Powell told reporters, and it anticipates lowering the lending rate to 3.9% by the end of 2025 and 3.4% at the end of 2026.
“We’ve been moving policy toward a more neutral setting,” Powell said, while “enabling further progress on inflation.”
“We’re not on any preset course,” Powell added. “We can be more cautious while considering more policy cuts.”
He said the risks of inflation and unemployment are “roughly in balance” and monetary policy will adjust as the economy evolves and the Fed focuses on its dual goals of maximum employment and stable prices.
“Our success in delivering on these goals matters to all Americans,” Powell said. “They affect families and businesses across the country.”
He said job creation is below the level that would hold unemployment constant and is “much cooler” than in 20019 — and is still “cooling.”
Meanwhile, housing costs are coming down substantially, but slower than hoped.
Investors on Wednesday morning were buoyed by their anticipation of a reduction in the federal lending rate and its anticipated effect on the nation’s economy.
The Dow Jones Industrial average bucked a recent downward trend by posting a 160-point gain Wednesday morning after nine straight days of losses.
The nine consecutive days of losses are the longest since 1978, but investor optimism over an anticipated rate cut by the Federal Reserve has the Dow poised to post its first daily gain over the past two weeks. The 160-point gain for the Dow represents a 0.4% increase
The S&P 500 and NASDAQ Composite likewise posted modest gains of 0.2%, each, as of Wednesday morning.
The nation’s economy continues growing by about 3%, while the labor market is holding steady, but inflation has remained above the Fed’s 2% target.
Analysts anticipate the Commerce Department on Friday will report the personal consumption expenditure price index rose by 2.5% in November and 2.9% when excluding food and energy costs.
The Fed’s announcement on Wednesday is its last under President Joe Biden’s administration. Any further rate activity will occur after President-elect Donald Trump takes the oath of office on Jan. 20.
The Fed anticipates two more rate cuts in 2025, another two in 2026 and one more in 2027 in quarter-point increments.
