Fed cuts benchmark interest rate by 0.25%... Powell hints at slowing the pace

Source: BlockMedia Original Title: Federal Reserve Cuts Key Interest Rate by 0.25%… Powell Signals Pace Adjustment(Summary) Original Link: The Federal Reserve(Fed·Federal Reserve)cut the benchmark interest rate by 0.25 percentage points at the last Federal Open Market Committee(FOMC) meeting of the year.

The Fed has implemented three consecutive rate cuts, following those in September and October. Chairman Jerome Powell assessed the current rate level as ‘neutral’ and hinted at possible adjustments to the pace of future rate cuts.

Three Consecutive ‘Baby Cuts’… “Focusing on Employment Protection During Slowing Growth”

After the FOMC meeting on the 10th(local time), the Fed announced a 0.25% reduction in the benchmark rate from 3.75–4.00% to 3.50–3.75%. With this decision, the interest rate gap with South Korea(2.50%) has narrowed to a maximum of 1.25 percentage points.

The Fed explained the rate cut in its statement, stating, “We judge that downside risks to employment have increased in recent months.” This move, alongside inflation stabilization, emphasizes protecting the employment market as part of its dual mandate of price stability and maximum employment.

Powell: “Now at Neutral Rate”… Cautious about Further Cuts

The market paid close attention to Powell’s comments and the revised language in the statement. Powell said in a press conference, “The current interest rate is within a range estimated to neither stimulate nor restrain the economy, the so-called ‘neutral rate.’”

This suggests that the Fed’s target for future rate cuts is approaching. Major foreign news outlets interpreted this as a “signal that a rate cut next year cannot be guaranteed.”

Indeed, the Fed added a new phrase in this statement regarding future policy decisions: “considering the ‘extent and timing(extent and timing)’ of any additional adjustments.” Experts see this as an indication that the Fed might delay rate cuts or consider halting them depending on economic developments.

Powell also indicated a wait-and-see approach, saying, “We are in a good position to observe how the economy evolves while waiting.”

Growth Rate for Next Year Raised to 2.3%… “Confidence in Soft Landing?”

According to the Fed’s dot plot, the median forecast for the end-of-year interest rate remains at 3.4%, unchanged from September. Considering the current rate(3.50~3.75%), only a single 0.25% rate cut is expected next year.

The economic outlook has improved. The Fed significantly raised its forecast for U.S. economic growth next year from 1.8% to 2.3%. The unemployment rate is expected to stay at 4.4%, and inflation is projected to fall to 2.4% next year.

This reflects confidence that the U.S. economy can achieve a ‘no landing(No Landing)’ or ‘soft landing’ scenario without entering a recession, and also suggests that the urgency for rapid rate cuts has diminished.

Fed’s Disagreement After 6 Years… “Holds vs Big Cuts”

This meeting revealed stark differences among committee members. Of the 12 voting members, 9 supported the rate cut, while 3 opposed. The presence of three dissenters marks the first time in six years.

Steven Myron, an aide to President Donald Trump, argued for a 0.50% point rate cut(big cut), advocating for strong stimulus. On the other hand, Federal Reserve Bank of Kansas City President Jeffrey Shmidt and Chicago Fed President Austin Goolsbee supported holding rates steady.

With disagreements among members intensifying, uncertainty about the rate path for next year is expected to increase. Markets anticipate that as the Fed emphasizes a ‘data-dependent(Data Dependent)’ approach, asset market volatility could rise depending on upcoming employment and inflation data.