Hawk cut for Fed as ‘foggy night’ looms: US central bank cuts rates for third time this year

The US central bank cut interest rates for the third time last night

time this year, but noted that new cuts in 2025 will be slower than previously thought.

The pre-Christmas boost for borrowers in the world’s largest economy pushed rates to a range of 4.25 to 4.5 percent, one percentage point below where they were in September.

But economists described it as a “hardline cut” as projections released alongside the US Federal Reserve’s decision suggested there would be just two more cuts of a quarter percentage point next year, down from four. .

And Federal Reserve Chair Jerome Powell said the central bank’s decision to take action was “closer” than before, while next year it would be “cautious” about doing so again.

The decision comes ahead of the Bank of England’s final meeting of the year, at which rates in the UK are expected to remain unchanged.

The Federal Reserve’s latest projections are the first since Donald Trump’s victory in the November presidential election.

It has raised its inflation forecast, expected to be 2.5 percent by 2025, from a previous figure of 2.1 percent and further from the Federal Reserve’s 2 percent target.

US inflation has already proven more persistent than expected, reaching 2.7 percent in November, a four-month high.

And there are fears that price pressures could increase due to policies favored by Trump, such as high import tariffs, big tax cuts and immigration restrictions.

Maintaining low unemployment and robust economic growth are also on the minds of rate setters when deciding whether further rate cuts are necessary.

And Powell told reporters that some Fed rate-setters were starting to take into account “political uncertainty” – a clear reference to Trump’s presidency – when making their projections.

«When the path is uncertain, you go a little slower; It’s not much different than driving on a foggy night or entering a dark room full of furniture. “Just slow down,” he added.

He said progress on inflation would be necessary for further rate cuts.

Today the Bank of England is expected to leave rates unchanged at 4.75 percent.

It has lagged behind the United States and the eurozone in reducing the cost of borrowing in recent months.

But official UK figures this week showing wages grew at a faster-than-expected 5.2 per cent and inflation rose to 2.6 per cent have probably cemented the Bank’s decision to stay put.