The Federal Reserve announced Wednesday that it would lower its federal funds rate target range by 25 basis points in an attempt to bolster economic growth.
The Fed’s decision to lower rates to a target range of 4.25% to 4.50% comes after the consumer price index (CPI), a measure of the price of everyday goods, rose by a 0.3% month-over-month increase and a year-over-year increase of 2.7%, according to a report from the Bureau of Labor Statistics published on Dec. 11. The interest rate cut met expectations, with financial markets predicting a 95.4% chance of a quarter-point cut ahead of Wednesday’s announcement, according to the CME Group’s FedWatch Tool.
Wednesday’s meeting marked the Fed’s third consecutive rate cut this year, following a 0.5 percentage point reduction in September, and a 0.25 percentage point cut in November. Prior to the September cut, the Fed had kept its target range between 5.25% and 5.50% — the highest range since 2001 — in an effort to ease inflation. September marked the first cut since March 2020 and the first change to Fed policy since it hiked its federal funds rate in July 2023.
The U.S. economy added 227,000 nonfarm payroll jobs in November, according to data from the Bureau of Labor Statistics, exceeding economist expectations of 214,000. Meanwhile, the unemployment rate rose slightly to 4.2% in November, up from 4.1% in October.
Total household debt increased by $147 billion, or 0.8%, in the third quarter of 2024, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data (CMD). Mortgage balances rose by $75 billion from the previous quarter, reaching $12.59 trillion at the end of September, according to CMD.
Although U.S. inflation has eased since its peak of 9.1% in June 2022, it remains stubbornly above the Fed’s 2% target. Many businesses and consumers have continued to struggle with high costs under the Biden-Harris administration.
President-elect Donald Trump repeatedly emphasized the importance of improving the U.S. economy while on the campaign trail, and previously vowed to boost domestic manufacturing jobs. Trump has also vowed to impose a slate of new tariffs on foreign countries such as China, Mexico and Canada.
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