On Wednesday, December 18th, the Federal Reserve announced its third consecutive rate cut. In its announcement, the Federal Open Market Committee stated, “In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent.”
Federal Reserve Jerome Powell stated in an announcement that “Today was a closer call. We decided it was the right call because we thought it was the best decision to foster the achievement of both of our goals of maximum employment and price stability.”
“Downside risks of the labor market do appear to have diminished, but the labor market is loser than pre-pandemic, but it appears to be cooling still.” Powell went on to say that “Job creation is well below the level that will hold employment constant.”
It appears that the FOMC’s decision was largely based on the labor market, as it has clearly stated that its goals is to support employment in the United States.
Fed Chairman Powell addresses the media after the announcement of rate cuts, December 18th.
Regarding 2025 and potential cuts, Powell stated, “I think the slower pace of cuts next year reflects both higher inflation readins we’ve had this year, and the expectation that inflation will be higher.” Powell continued, “I think the actual cuts we make next year will be not because of anything we wrote down today.”
The stock market quickly reacted to the news, with the S&P 500 dropping 2.95%, The Dow Jones dropping 2.58%, and the Nasdaq dropping 3.56%.