Fed wraps up 2024 with rate cut

By Dilara Zengin

WASHINGTON (AA) - The Fed wrapped up the year with a rate cut, having spent most of 2024 keeping its rates unchanged.

The bank finally loosened its long-held tight stance in September to support the US economy in the face of softening labor market and the signs of slowdown in inflation.

The Fed kept its policy rate unchanged at a 23-year-high of 5.25% to 5.5% in January, stating that it would not be appropriate to lower its policy rate until the confidence of reaching the 2% inflation target was established.

Despite the signs of slowing inflation, the bank kept its rates unchanged in March. The bank continued to keep its rates unchanged in May due to mixed signals, and Fed Chair Jerome Powell had said that inflation came in above expectations the same month, noting that the bank may take longer than expected.

For the next two months, the Fed’s rates had yet to be changed, which stood at the highest level since 2001.

The Fed kept its rates steady for most of the year, having learned from the effects of aggressive rate hikes in 2022 and 2023.

The first rate cut of the year came in September – it was also the first in four years, since the pandemic.

The Fed lowered its policy rate by 50 basis points to 4.75% to 5%, pushing the start button on its easing cycle. Powell had then said that the upside risks to employment were diminished and the rate cut signaled growing confidence in the strength of the labor market.

In November, the Fed cut its interest rates by 25 basis points, continuing its easing cycle.

The Fed cut its policy rate by another 25 basis points in December to 4.25% to 4.5%. The bank has cut its interest rates by a total of 100 basis points in three consecutive meetings.

The rate cut decisions were due to maintaining the US economy’s and its labor market’s strength while sustainably reducing the inflation to the 2% target.

In June 2022, the US had an annual inflation of 9%, the highest since 1981. This rate was recorded at 2.7% in November, while the core inflation was at around 3.3%, giving the bank enough confidence to keep lowering its rates.

In 2020, the Fed lowered its policy interest rate to the 0% to 0.25% range in March due to concerns over the economic effects by the pandemic. The bank made 11 rate hikes since March 2022 by a total of 525 basis points in the face of rising inflation.

The Fed raised its policy rate by 25 basis points in July 2023, and afterwards, it left it unchanged at that range for eight consecutive meetings.

- Rate cuts to slow down in 2025

The Fed signaled at its latest meeting in December that it may slow down its rate cuts, as the future rate expectations of the FOMC members signaled two rate cuts next year by a total of 50 basis points.

The bank’s inflation estimates were upwardly revised from 2.3% to 2.4% for 2024, and from 2.1% to 2.5% for 2025, and forecasts for 2026 were revised up from 2% to 2.1% and the estimates for 2027 stayed the same at 2%.

While the bank estimates inflation to be stickier than expected due to President-elect Donald Trump’s protectionist policies, Powell said at a press conference on Wednesday that the bank’s policy stance is significantly less restrictive and they will exercise more caution when considering future rate cuts.

*Writing by Emir Yildirim in Istanbul