US Federal Reserve cuts interest rates by 25 basis points

The Federal Reserve continued its efforts to make borrowing cheaper by cutting its benchmark interest rate on Wednesday.

The Fed lowered its key interest rate by 25 basis points, marking the third consecutive reduction. This move came with a cautionary tone about potential additional reductions in the coming years, foreign news agencies reported.

The rate was lowered to a target range of 4.25% to 4.50%, a full 1% drop since September. The federal funds rate influences borrowing costs for credit cards, loans, auto financing, and, more indirectly, mortgages.

According to agencies, Cleveland Federal Reserve Bank President Beth Hammack dissented from Wednesday's rate cut, expressing a preference to leave rates unchanged.

While inflation has significantly decreased since reaching a four-decade high in 2022, progress on prices has slowed in recent months. The annual inflation rate in November was 2.7%, slightly higher than the previous month.

Fed officials remain determined to bring inflation down further, acknowledging the lengthy and exhausting battle. Members of the rate-setting committee now believe it will be 2027 before inflation falls to the Fed's 2% target.

"I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out, yet it keeps slipping out of my grasp at the last minute," Fed Governor Chris Waller said in a speech this month. "But let me assure you that submission is inevitable. Inflation isn't getting out of the octagon."

The Labor Department's most recent inflation report showed some progress on housing costs, with rent increases in November being the smallest in nearly three-and-a-half years.

However, the price of new and used cars continued to climb, and grocery prices saw their biggest increase in 22 months.

Despite the rate cut, the committee raised its projection for full-year gross domestic product (GDP) growth to 2.5%, half a percentage point higher than in September. However, officials expect GDP to slow down to its long-term projection of 1.8% in the coming years, agencies reported.

Other changes to the Summary of Economic Projections included lowering the expected unemployment rate this year to 4.2%, while headline and core inflation estimates were pushed higher to 2.4% and 2.8%, respectively, slightly above the Fed's 2% goal.

The committee's decision comes as inflation remains above the central bank's target, with the economy projected by the Atlanta Fed to grow at a 3.2% rate in the fourth quarter and the unemployment rate hovering around 4%.