Dow Jones, S&P and Nasdaq decline as Fed cuts interest rates, points to two more cuts in 2025

The Federal Reserve lowered interest rates on Wednesday by 25 basis points to a range of 4.25%-4.5% At its last meeting of the year, it indicated that it would slow the pace of cuts.

Along with the policy announcement, which lowered the benchmark interest rate At 4.25% and 4.5% interestthe Fed issued updated economic forecasts in its Summary of Economic Projections (SEP), including “Point plot“, which shows policymakers’ expectations about where interest rates could go in the future.

Fed officials see the federal funds rate peaking at 3.9% in 2025, higher than the Fed’s previous forecast in September of 3.4%. Beyond the massive 50 basis point cut in September, the Fed has moved on Increases of 25 basis points over the past year or so, suggesting that the central bank expects to cut interest rates two more times in 2025.

Officials expect two more cuts in 2026, bringing the federal funds rate down to 3.4%. In September, central bank officials pegged interest rates to peak at 2.9% in 2026.

The Fed expects core inflation to peak at 2.5% next year – above the September forecast of 2.2% – before cooling to 2.2% in 2026 and 2.0% in 2027, the SEP noted.

Officials expect the unemployment rate to rise slightly to 4.3% in 2025, which is lower than the previous forecast of 4.4%. Unemployment is expected to remain at this level until 2026 and 2027.

The Federal Reserve raised its previous forecast for US economic growth, as the economy is expected to grow at an annual pace of 2.1% next year before cooling to 2.0% in 2026 and 1.9% in 2027.

In September, officials forecast GDP growth of 2.0% in 2025, 2026 and 2027. It also revised its previous forecast of 2.0% growth in 2024 to 2.5%.

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