US Fed cuts rate by quarter point, expects fewer cuts in 2025

HOUSTON (ICIS)–The Federal Reserve lowered on Wednesday its benchmark interest rate by a quarter point while reducing the number of cuts it expects to make in 2025.

The quarter point decline brings the benchmark federal funds rate to 4.25-4.50%.

Fed members and presidents expect the rate will fall to 3.9% by the end of 2025. That represents two quarter-point cuts.

Earlier in September, the group expected the rate would fall to 3.4%, which represented four quarter-point cuts.

The group expects inflation will remain above the Fed’s target of 2%, according to projections they made in regards to the core personal consumption expenditures (PCE), which the central bank’s preferred measure of inflation.

The 2025 forecast for core PCE is 2.5%, up from September’s forecast of 2.2%. The group does not expect inflation will reach its target until 2027.

CHEMS STILL STRUGGLING WITH ELEVATED LONG-TERM RATES
So far, the current reductions in the federal funds rate have not translated into reductions in longer term rates, such as 10-year treasury notes and 30-year mortgages for home loans.

Both remain elevated, and that has limited demand for housing as well as appliances, furniture and other durable goods. These are all large end markets for several plastics and chemicals. Weak demand in these core markets have depressed several plastic and chemical markets.

Rates for longer term debt remain elevated, in part, because of the growing size of the US deficit. The US funds the deficit by issuing larger amounts of debt. Those larger debt issuances have raised rates for longer term government debt and private debt with similar maturities.

ECONOMIC GROWTH REMAINS SOLID
In comments identical to its November statement, the Fed said the US economy continues to grow at a solid pace, and unemployment remains low. Inflation remains elevated despite making progress towards the Fed’s 2% target.

The following table summarizes the Fed’s economic projections and compares them to the ones it made in September.

	2024	2025	2026	2027
GDP	2.5	2.1	2	1.9
Sept GDP	2	2	2	2
Unemployment	4.2	4.3	4.3	4.3
Sept Unemployment	4.4	4.4	4.3	4.2
PCE Inflation	2.4	2.5	2.1	2
Sept PCE Inflation	2.3	2.1	2	2
Core PCE	2.8	2.5	2.2	2
Sept Core PCE	2.6	2.2	2	2
Fed Funds Rate	4.4	3.9	3.4	3.1
Sept Fed Funds Rate	4.4	3.4	2.9	2.9

Source: Fed

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