U.S. Federal Reserve Lowers Key Lending Rate, Fewer Cuts Expected Next Year

By Song Sang-ho

WASHINGTON, Dec. 18 -- The U.S. Federal Reserve has decided to lower its benchmark interest rate by a quarter-percentage point. This decision comes with a signal that the central bank may only implement two more cuts next year, which is two fewer than previously expected three months ago.

Following the conclusion of a two-day meeting of the Federal Open Market Committee (FOMC), the central bank announced that the federal funds rate is now set at a range of 4.25 to 4.50 percent. This latest reduction follows a similar decrease last month and a more significant, 50-basis-point cut in September.

The new median economic projections released by FOMC members suggest that the federal funds rate is expected to drop to 3.9 percent by the end of next year. This is an increase from the earlier forecast of 3.4 percent made in September, indicating a more cautious approach to future rate cuts.

Additionally, the median projections show that Personal Consumption Expenditures (PCE) inflation is anticipated to rise to 2.5 percent by the end of next year, which is higher than the previous estimate of 2.1 percent from September.

At a press conference following the meeting, Fed Chair Jerome Powell explained that the slower pace of rate cuts for the upcoming year is attributed to the higher inflation rates observed this year. He stated, "The risks and uncertainty surrounding inflation are perceived as higher."

Powell emphasized that the cuts that may occur next year will not strictly follow the figures presented in the latest projections, underlining that the situation remains fluid.

This week’s decision to cut rates has widened the gap between interest rates in South Korea and the United States to as much as 1.5 percentage points, reflecting changes in monetary policy across borders.

Implications of the Rate Cut

The decision to slash interest rates has significant implications for both consumers and businesses. Lower interest rates generally make borrowing cheaper, which can encourage spending and investment. However, the Fed’s more tempered forecast for cuts may indicate that the central bank is taking a cautious approach to manage inflation risks.

Future Outlook

As inflation rates rise and economic uncertainties continue, the Federal Reserve appears to be balancing the need for economic growth with the necessity to curb inflation. Investors and analysts will be watching closely for any further indications from the Fed regarding its future monetary policy direction.

Federal, Interest, Economy