The Federal Reserve lowered interest rates Wednesday by 25 basis points to a range of 4.25%-4.5% at its final meeting of the year and signaled it would slow the pace of its cuts.
Along with its policy announcement, which lowered the benchmark interest rate to a range of 4.25% and 4.5%, the Federal Reserve released updated economic forecasts in its Summary of Economic Projections (SEP). ), including its “dot plot,” which outlines policymakers’ perspectives. expectations about where interest rates might go in the future.
Federal Reserve officials forecast the federal funds rate will peak at 3.9% in 2025, up from the Fed’s previous September projection of 3.4%. Aside from September’s massive 50 basis point cut, the Federal Reserve has made 25 basis point increases over the past year, indicating the central bank expects to cut interest rates twice more in 2025.
Officials anticipate two more cuts in 2026, which would reduce the federal funds rate to 3.4%. In September, central bank officials had pegged interest rates to peak at 2.9% in 2026.
The SEP indicated that the Federal Reserve expects core inflation to peak at 2.5% next year (up from September’s projection of 2.2%) before cooling to 2.2% in 2026 and 2.2%. 0% in 2027.
Officials expect the unemployment rate to rise slightly to 4.3% in 2025, down from the previous forecast of 4.4%. Unemployment is expected to remain at that level until 2026 and 2027.
The Federal Reserve raised its previous forecast for US economic growth, with the economy expected to grow at an annualized rate of 2.1% next year before cooling to 2.0% in 2026 and 1.9% in 2027.
In September, officials saw GDP growth of 2.0% in 2025, 2026 and 2027. They also revised their previous forecast of 2.0% growth in 2024 to 2.5%.
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