Fed Cuts Rates for Now, But Suggests a Slower Easing Ahead as Economy Remains Strong

The Federal Reserve cut interest rates by a quarter point on Wednesday, as expected, but suggested that the pace at which it will reduce rates next year would be cut in half.

The move brings the Fed’s key overnight lending rate to a range of 4.25% to 4.5%. While anticipated, analysts will likely focus more on the updated projections for rates and the economy in 2025 and beyond.

The Fed now sees inflation remaining somewhat higher, with the federal funds rate now projected to end 2025 at 3.9%. That is a half point higher than the central bank forecast in September and the 2026 projection is for 3.4%, up from 2.9% in its earlier forecast.

The economy is “solid,” the Fed said in announcing its decision. While the labor market has softened, the Fed noted progress on getting inflation down to its 2% goal but acknowledged it remains “elevated.” It raised its outlook for economic growth upward to 2.5% this year from 2% three months ago.

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