WASHINGTON — The Federal Reserve signaled on Wednesday that it may begin adjusting interest rates in the second quarter of 2025, as inflation continues to moderate toward the central bank's 2% target.
In a widely anticipated policy statement following its two-day meeting, the Federal Open Market Committee (FOMC) left the benchmark federal funds rate unchanged at 5.25%-5.50%, where it has been since July 2024.
However, the committee's accompanying economic projections showed that most policymakers now expect to cut rates by 0.75 percentage points by the end of 2025, compared to just 0.50 percentage points in their September projections.
Key Points from FOMC Meeting
- Federal Funds Rate: 5.25%-5.50%
- Inflation Projection: 2.1% (2025)
- GDP Growth: 1.8% (2025)
- Unemployment Rate: 3.8% (2025)
"The committee judges that inflation has eased over the past year but remains elevated," the FOMC statement said. "In support of its goals, the committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50%."
Chair Jerome Powell, in his post-meeting press conference, emphasized that the committee will continue to make decisions based on incoming data, but acknowledged that "the question of when it will become appropriate to begin dialing back the amount of policy restraint in place is coming into view."
Financial markets reacted positively to the news, with the S&P 500 index rising 1.2% and the yield on the 10-year Treasury note falling to 4.05%, its lowest level since August 2024.
Economists said the Fed's more dovish stance reflects growing confidence that inflation is under control, while the labor market remains strong. The unemployment rate stood at 3.7% in December, near a 50-year low.
"Today's projections suggest the Fed is on track to deliver the 'soft landing' that many economists had doubted was possible," said Mary Miller, chief economist at Global Financial Services. "The committee appears to believe it can begin cutting rates without risking a resurgence in inflation."
However, some analysts cautioned that the Fed's rate path could change if inflation proves more persistent than expected. "The Fed is being careful not to declare victory too soon," said David Jones, a former Fed economist. "They want to see more evidence that inflation is sustainably moving back to 2%."
The FOMC is scheduled to meet next in March 2025, with markets currently pricing in a roughly 60% chance of a rate cut at that meeting, according to CME Group's FedWatch tool.