Fed Cuts Rates By 25 Bps And Raises Its Federal Funds Rate And Inflation Projections

On December 18, 2024, Fed released FOMC Statement. Fed decided to lower the target range for the federal funds rate by 25 bps to 4.25% – 4.50%, in line with analyst expectations.

Fed noted that inflation had made progress towards the 2% target but remained elevated. The central bank believes that risks to achieving its employment and inflation goals are roughly in balance.

Today, Fed also published its economic projections, which contain material changes from its September projections.

The change in real GDP for 2024 is expected at 2.5%, compared to the previous expectation of 2.0%. The forecast for 2025 was increased from 2.0% to 2.1%.

Unemployment Rate projection for 2024 declined from 4.4% to 4.2%, while the next year’s estimate was lowered from 4.4% to 4.3%.

PCE inflation expectations were increased from 2.3% to 2.4% for 2024. The forecast revision for 2025 was more significant, as PCE inflation projection was raised from 2.1% to 2.5%.

Importantly, the federal funds rate projection for 2025 was increased from 3.4% to 3.9%. The 2026 estimate was also increased from 2.9% to 3.4%.

Overall, the Fed expects stronger economy, higher inflation and higher interest rates compared to its September projections.

U.S. Dollar Index rallied above the 107.50 level as traders focused on Fed’s economic projections. The changes in federal funds rate projections served as the key bullish catalyst for U.S. dollar.

Gold pulled back towards the $2620 level as traders focused on strong U.S. dollar.

SP500 moved below the 6040 level as Fed’s projections were more hawkish than expected.

For a look at all of today’s economic events, check out our economic calendar.