Fed Announces 3rd Rate Cut of the Year

The Federal Reserve announced its third interest rate cut of the year on Wednesday. The quarter-point cut, which follows a plus-sized half-point cut in September and a quarter-point cut last month, brings the Fed's benchmark rate from about 4.6% to roughly 4.3%, the AP reports. The September cut brought rates down from a 23-year-high, and the benchmark rate is now back to where it was in December 2022. But the next rate cut will probably be months away. The Fed indicated that there will probably be only two rate cuts next year, followed by two more in 2026, CNBC reports. In September, officials predicted four cuts in 2025, reports the Wall Street Journal.

At a news conference, Fed Chair Jerome Powell said a "slower pace of cuts really reflects both the higher inflation readings we've had this year" and expectations that inflation will be higher next year. "We're closer to the neutral rate, which is another reason to be cautious about further moves," Powell said. There has been little progress in reducing inflation in recent months, and the economy remains relatively healthy, weakening the case for rate cuts, CNN reports. The Dow Jones Industrial Average, which had been up more than 200 points ahead of the announcement, fell almost 400 points after the Fed's remarks on future rate cuts and is on course to extend its longest losing streak since 1978.

Some economists believe President-elect Trump's policy plans, including large hikes to tariffs, could aggravate inflation, potentially leading to interest rate rises instead of cuts, but it's not clear whether the policies will be implemented. "Obviously the Fed's in a bind," Vincent Reinhart, former director of the Division of Monetary Affairs at the Fed, tells CNBC. "We used to call it the trapeze artist problem. If you're a trapeze artist, you don't leave your platform to swing out until you're sure your partner is swung out. For the central bank, they can't really change their forecast in response to what they believe will happen in the political economy until they're pretty sure there'll be those changes in the political economy." This story has been updated with Powell's remarks. (More Federal Reserve stories.)