U.S. Federal Reserve Hints on Two Rate Reductions in 2025
(MENAFN) The U.S. Federal Reserve hinted on Wednesday that it may implement at least two interest rate reductions in 2025, as indicated in its newly released economic projections.
While the Fed held its estimate for the federal funds rate steady at 3.9% for the end of 2025, it slightly raised its outlook for the following years. The rate forecast for 2026 moved up from 3.4% to 3.6%, and for 2027, from 3.1% to 3.4%. Its long-term rate expectation remained unchanged at 3%.
These adjustments suggest the central bank still envisions a pair of rate cuts next year.
The inflation trajectory also shifted upward. Projections for headline inflation were increased to 3% for 2024 (up from 2.7%), 2.4% for 2026 (previously 2.2%), and 2.1% for 2027 (up from 2%).
Similarly, expectations for core inflation — which excludes food and energy prices — were revised up to 3.1% in 2024 (from 2.8%), 2.4% in 2026 (from 2.2%), and 2.1% in 2027 (from 2%).
In contrast, the Fed now anticipates slightly slower economic growth in the near term. It lowered its U.S. GDP growth estimate for 2025 to 1.4%, down from 1.7%, and for 2026 to 1.6%, down from 1.8%. The 2027 projection remained stable at 1.8%.
The unemployment rate is also expected to tick higher. Forecasts for joblessness rose to 4.5% for both 2024 and 2025 (from previous estimates of 4.4% and 4.3%, respectively), and to 4.4% for 2027 (up from 4.3%).
At its latest policy meeting, the Fed left the federal funds rate untouched, keeping the target range at 4.25% to 4.50%.
The central bank reiterated that while economic uncertainty has eased somewhat, it still remains elevated.
Since peaking at a historic 5.5% from July 2023 through September 2024, the Fed began gradually cutting rates, reaching 4.5% by its December 2024 meeting.
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