Fed cuts key interest rates by 0. 25%

Wall Street stocks tumbled Wednesday after the Federal Reserve lowered interest rates but also slashed the number of 2025 rate cuts in its forecast. The Federal Reserve cut its key interest rate on Wednesday by a quarter-point — its third cut this year — but also signaled that it expects to reduce rates more slowly next year than it previously envisioned, largely because of still-elevated inflation.The Fed’s 19 policymakers projected that they will cut their benchmark rate by a quarter-point just twice in 2025, down from their previous estimate in September of four rate cuts. Their new quarterly projections suggest that consumers may not enjoy much lower rates next year for mortgages, auto loans, credit cards and other forms of borrowing.
The Fed said that the reverse repo rate will now stand at 4.25% from its prior level of 4.55%, marking a 30 basis point easing, while it lowered the federal funds target rate range by a quarter percentage point to between 4.25% and 4.5%. Analysts believe the largely expected adjustment is a bid by the Fed to nudge cash out of a facility that's widely viewed as a proxy for excessive liquidity in the financial system.
While inflation has "eased significantly," the level remains "somewhat elevated" compared to the Fed's long-term target of two percent, Chair Jerome Powell told reporters on Wednesday.He said he remained "very optimistic" about the state of the US economy, adding that the Fed was now "significantly closer" to the end of its current easing cycle. It was the final planned rate decision before outgoing Democratic President Joe Biden makes way for Republican Donald Trump, whose economic proposals include tariff hikes and the mass deportation of millions of undocumented workers.