US Fed cuts interest rates but cautions for year ahead
Al Jazeera1 day
US Fed Cuts Interest Rates, Sending Markets Downward
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Above: US Federal Reserve Chairman Jerome Powell on Dec. 18, 2024 Image copyright: ANDREW CABALLERO-REYNOLDS/Contributor/AFP via Getty Images
The Facts
The US Federal Reserve on Wednesday reduced benchmark rates by 0.25 percentage points to 4.25-4.5%. This was its third straight cut — also its last before Donald Trump returns as president.
Fed Chair Jerome Powell indicated entering a "new phase" involving caution about further cuts, as inflation has persisted. This caused US stocks to drop sharply on Wednesday.
The Spin
Pro-establishment narrative
In a nuanced shift in monetary policy, the US Federal Reserve has adopted a more measured approach to rate cuts, acknowledging both progress and persistent challenges in taming inflation. While delivering a quarter-point cut, Powell emphasized the need for caution going forward, particularly given sideways inflation movements and potential inflationary pressures from proposed Trump administration policies. This careful stance reflects the delicate balance between supporting economic growth and preventing inflation from regaining momentum.
Establishment-critical narrative
Despite delivering a 25-basis-point rate cut, the Federal Reserve's latest move has sparked skepticism in financial markets as shown by "Black Wednesday." With Cleveland Fed President Hammack's dissent and Chair Powell describing the decision as a "close call," markets are essentially calling the Fed's bluff. The puzzling logic of planning rate cuts while projecting higher inflation, combined with Trump's potentially inflationary trade policies, has some economists predicting the Fed may even go for increasing interest rates in 2025, which will roil the markets for some time to come.
