US economy entering much more uncertain phase than Recession? What does Fed rate cut tell us?

US Fed rate cut has been announced. Federal Reserve officials made their third and final rate cut of 2024 at their meeting on Wednesday. They also forecast two fewer rate reductions in 2025 than they had previously expected, as inflation lingers and the economy holds up, as per a report.

The Fed has come a long way from just a few years ago: In 2022, inflation was more than twice its current rate and many economists thought that the central bank’s decisions might cause a recession as it rapidly lifted interest rates to slow demand and wrestle price increases back under control, NYT News Service reported.

That didn’t happen. The job market slowed without falling apart, and inflation cooled so substantially that the Fed was able to begin cutting interest rates in September. But the Fed is now entering a new phase in its journey toward an economic soft landing — a much more uncertain one, according to NYT News Service report.

Officials thought that it was clear that rates needed to come down notably from their 5.3 per cent peak, and they have steadily lowered them to about 4.4 per cent by making three back-to-back reductions. Policymakers have now arrived at a point where it is uncertain how much further rates should fall.

“Our policy stance is now significantly less restrictive,” Jerome Powell, the Fed chair, said during a news conference Wednesday. “We can therefore be more cautious as we consider further adjustments to our policy rate,” Powell said.

The Fed’s forecasts make clear that central bankers are poised to slow rate cuts notably starting next year as stubborn inflation lingers — and Powell made it clear that the Fed wants to see further progress toward cooler inflation to cut interest rates at all.Markets shuddered at that assessment. The S&P 500 index fell nearly 3 per cent, its worst tumble since August. The Dow Jones industrial average fell for a 10th straight day, its longest losing streak since October 1974.Fed officials predicted that they will cut rates to 3.9 per cent in 2025 in their fresh economic estimates — suggesting that they will make just two rate cuts next year. They had forecast four when they last released economic projections back in September.

The exact timing of the Fed’s future rate reductions is uncertain. “For additional cuts, we’re going to be looking for further progress on inflation,” Powell said.

FAQs

Q1. What is full form of US Fed?
A1. The full form of US Fed is the US Federal Reserve.

Q2. What does US Fed’s forecast say?
A2. The US Fed’s forecasts make clear that central bankers are poised to slow rate cuts notably starting next year as stubborn inflation lingers — and Powell made it clear that the Fed wants to see further progress toward cooler inflation to cut interest rates at all.