WASHINGTON — The US Federal Reserve on Wednesday slashed interest rates by 25 basis points, the third consecutive rate cut in this easing cycle, as it braces for uncertainty stemming from the incoming Donald Trump administration’s tariff policies.
“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate,” the Federal Open Market Committee (FOMC), the central bank’s policy-setting body, said in a statement.
In support of its goals, the committee decided to lower the target range for the federal funds rate by 25 basis points to 4.25 percent to 4.5 percent, it continued.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate,” Fed Chair Jerome Powell said at a press conference Wednesday afternoon.
After its Sept. 17-18 meeting, the central bank slashed the target range for the federal funds rate by 50 basis points amid cooling inflation and a weakening labor market, marking the first rate cut in over four years and signaled the start of an easing cycle. After its Nov. 6-7 meeting, it further lowered the target range for the federal funds rate by 25 basis points.
According to the Fed’s latest quarterly summary of economic projections released Wednesday, the median projection for personal consumption expenditures (PCE) inflation among Fed officials is 2.4 percent by year-end, up from 2.3 percent in the September projection. Median projection for PCE inflation in 2025 is 2.5 percent, up from 2.1 percent in the September projection.
The summary of economic projections also showed that median projection for federal funds rate in 2025 is 3.9 percent, up from 3.4 percent in the September projection, indicating that the Fed will likely reduce the speed of interest rate cuts. This roughly translates into a median forecast of two 25-basis-point cuts next year, down from four in the September projection.
Powell told reporters that it’s still uncertain how Trump’s additional tariffs would impact the inflation picture.
“So we just don’t know, really, very much at all about the actual policies. So it’s very premature to try to make any kind of conclusion. We don’t know what will be tariffed, from what countries, for how long, in what size. We don’t know whether there will be retaliatory tariffs. We don’t know the transmission of any of that into consumer prices,” said Powell.
“It’s kind of common sense thinking that when the path is uncertain, you go a little bit slower,” he said.
The FOMC noted that the committee “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”