Fed cuts rates 25 bp, scales back 2025 easing projections
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Dec 18 (Reuters) -The U.S. Federal Reserve cut interest rates on Wednesday and signaled it will slow the pace at which borrowing costs fall any further given a relatively stable unemployment rate and little recent improvement in inflation.
The reduction by the central bank's Federal Open Market Committee in the benchmark policy rate to the 4.25%-4.50% range was opposed by Cleveland Fed President Beth Hammack, who preferred to leave the policy rate unchanged.
U.S. central bankers now project they will make just two quarter-percentage-point rate reductions by the end of 2025. That is half a percentage point less in policy easing next year than officials anticipated as of September.
MARKET REACTION:
STOCKS: The S&P 500 .SPX turned 0.53% lower after the news
BONDS: The yield on benchmark U.S. 10-year notes US10YT=RR rose to 4.448%. The 2-year note US2YT=RR yield rose to 4.319%
FOREX: The dollar index =USD extended 0.72% higher, while the euro EUR= extended a loss to -0.75%.
COMMENTS:
GENNADIY GOLDBERG, HEAD OF U.S. RATES STRATEGY, TD SECURITIES, NEW YORK
“The Fed has sent a signal that they're not going to be quite as dovish as they've been in the past, that they are leaning towards fewer cuts next year, and I think that's a signal for markets to continue to price in even fewer than two and possibly move in the direction of none if the data comes in strong enough.”
“The Fed is not willing to keep cutting if they don't see inflation coming down enough, and their summary of economic projections suggested that they still expect inflation at two and a half percent on core PCE by the end of next year.”
“The takeaway here is somewhat higher for longer rates, and you do see risky assets not loving this particular backdrop... Rates are moving higher but the saving grace for rates is that they've already been selling off for the last week or so, already expecting a relatively hawkish Fed, and it sounds like the Fed really delivered on the hawkishness.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
"Basically there were no surprises. They cut by 25 basis points, indicating only two rate cuts next year, also indicating a pause, probably in January and maybe extended into the first quarter.
But the market is turning south now, and the reason for that is the pace of rate cuts has been reduced, a pause is at hand and uncertainty over inflation is certainly on the minds of the Fed."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
"It looks like some early worries about tariffs could be creeping into the Fed’s projections. They’re penciling in fewer rate cuts in 2025, slightly higher inflation, and a modest increase in the unemployment rate. The Fed can cut back on the pace of rate cuts thanks to a strong economy. In 2019 the Fed cut rates after the trade war started taking a toll on growth, treating any inflationary pressure as temporary. The year 2025 is a very different setup, though. In 2019, inflation was below target. Now it’s still above target. Rates are still restrictive even with the cuts, but it’s better to slow the pace now instead of maintaining this pace only to find they need to backtrack."
(Compiled by the Global Finance & Markets Breaking News team)
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