The Federal Reserve has lowered the federal funds rate by an additional 25 basis points in its December meeting, setting the new target range at 4.25% to 4.5%.

This marks the third rate cut in 2024, aligning with market expectations.

The latest dot plot from policymakers now projects only two rate cuts for 2025, summing up to a total of 50 basis points, a significant decrease from the previously anticipated full percentage point reduction.

Upward revisions have been made for GDP growth. The forecast for 2024 is now at 2.5%, up from 2% in September, with 2025 projected at 2.1% (up from 2%), and 2026 steady at 2%.

The Personal Consumption Expenditures (PCE) inflation rate forecasts have been increased. For 2024, PCE inflation is expected to be 2.4% (from 2.3%), 2025 at 2.5% (from 2.1%), and 2026 at 2.1% (from 2%). Core PCE inflation estimates have also been adjusted higher, with 2024 at 2.8% (from 2.6%), 2025 at 2.5% (from 2.2%), and 2026 at 2.2% (from 2%).

The unemployment forecast has been revised downwards for 2024 to 4.2% from 4.4% and for 2025 to 4.3% from 4.4%, with no change for 2026 at 4.3%.

These adjustments reflect the Fed's response to the latest economic data, balancing growth with inflation concerns while aiming to maintain stability in the labor market. The Fed's next steps will be closely watched by markets as they navigate through these updated economic projections into the new year.

The Federal Reserve's next policy meeting is scheduled for January 28-29, 2025, where further assessments of economic conditions will guide monetary policy decisions. (ILKHA)