As expected, the Fed cut their benchmark Federal Funds Rate by 25 basis points, bringing it to a new range of 4.25% to 4.5%. This decision followed the 50-basis point cut the Fed made in September and the 25-basis point cut made in November. There was one dissent, as Cleveland President Beth Hammack preferred a pause to additional cuts. Note that when the Fed cuts rates, they are reducing the Fed Funds Rate, which is not mortgage rates or even a long-term rate. The Fed Funds Rate is a short-term, overnight rate that banks use to lend money to one another, but it is the building block for allinterest rates.
What’s the bottom line?
Remember, the Fed began aggressively hiking the Fed Funds Rate to try to curb runaway inflation that became rampant after the pandemic. More recently, cooling consumer inflation and rising unemployment caused the Fed to begin this latest series of rate cuts. And while inflation has cooled considerably after peaking in 2022, the progress lower towards the Fed’s 2% target has stalled in recent months. This caused the Fed to be more hawkish in their latest forward guidance. Their “dot plot” of member forecasts signaled that two rate cuts are expected next year, down from four cuts forecasted in September, though these estimates can change quicklybased on upcoming data.