Fed signals slower pace in rate hikes: Patience remains required

In times of rising living costs, many Americans long for lower interest rates on mortgages, credit cards, and cars. However, hopes may be dashed as the Federal Reserve hints at fewer rate cuts for the coming year following its latest meeting. The central bank officials are close to lowering their benchmark rate, which affects numerous consumer and business loans, by a quarter point to about 4.3%. This rate is now significantly below the four-decade high it reached in July 2023. Despite the fact that inflation has dropped significantly since its peak of 9.1% in mid-2022, it stubbornly remains above the target rate of 2%. This has prompted the Fed, led by Jerome Powell, to adopt a more cautious approach to future rate cuts. Economists predict the Fed will reduce rates less frequently—possibly only at every second meeting or even less often. "We're on the brink of a transition where they won't cut at every meeting," explains David Wilcox, an economist at Bloomberg Economics. Recent economic developments have exceeded expectations, while inflationary pressures remain persistent. The upcoming presidential election adds another unknown: President-elect Donald Trump plans measures that many economists believe could fuel inflation. Powell emphasizes that the currently robust economic situation allows the Fed to take a more cautious stance on rate cuts to reach a neutral level that neither stalls nor stimulates growth. On Wednesday, the Fed will release its quarterly forecasts on growth, inflation, unemployment, and the benchmark rate for the next three years. While it planned four cuts for next year in September, economists now expect only two or three cuts in 2025. Financial markets even anticipate just two rate adjustments, as indicated by futures prices.