The Federal Reserve reduced its key interest rate by 0.25 percentage points, setting the range at 4.25%-4.5%, marking the third consecutive cut this year. While this move was widely expected, the Fed signaled a more cautious approach to future adjustments, projecting only two more rate cuts in 2025 and a similar pace in the following years.

Chair Jerome Powell highlighted the shift toward a less restrictive policy stance, stating, “We can be more cautious as we consider further adjustments.” Despite economic growth remaining solid and inflation above target, the Fed aims to avoid unnecessary risks to the economy by keeping rates too high. The latest projections show stronger GDP growth and slightly higher inflation estimates, though the Fed expects long-term growth to moderate.

Markets reacted negatively to the announcement, with stocks declining and Treasury yields rising. This decision reflects a balancing act by the Fed as it navigates a resilient economy, inflationary pressures, and anticipated policy changes under the incoming administration.