Key Takeaways from the Federal Reserve’s Final Policy Meeting of 2024

Key Takeaways from the Federal Reserve’s Final Policy Meeting of 2024

The Federal Reserve concluded its last monetary policy meeting of the year on December 16-18, delivering a widely anticipated 25 basis points (bps) rate cut. This decision, aligning with market expectations, reflects a cautious shift as the central bank navigates persistently high inflation and uncertainty around upcoming economic policies under the Trump administration.

Below are the major highlights of the meeting and their implications for the economy.

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1. Rate Cut of 25 Basis Points

The Federal Open Market Committee (FOMC) voted 10-1 to lower the federal funds rate by 25 bps, bringing it to a target range of 4.25%-4.5%. This marks the third consecutive rate cut in 2024, resulting in a cumulative reduction of 100 basis points.

Looking ahead, the Fed signaled a more tempered approach to rate cuts, projecting just two 25-bps reductions in 2025 and a further 50-bps cut in 2026. This is a notable deviation from earlier forecasts, which had anticipated more aggressive rate easing over the next two years.

The revised projections underscore the Fed’s “wait-and-watch” approach, particularly as inflation remains stubbornly high and economic growth continues to exceed expectations.

Fed Chair Jerome Powell emphasized:

“We are committed to supporting maximum employment while ensuring inflation returns to our 2% goal. Balancing these objectives requires a cautious, data-driven approach.”

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2. Elevated Inflation Projections

The Fed revised its 2025 inflation forecast upward to 2.5%, from the previous estimate of 2.1%. This adjustment reflects heightened uncertainty, driven by potential policy changes under the Trump administration, including tax cuts, increased tariffs, and regulatory shifts.

Powell attributed the higher inflation outlook to “sticky” price pressures and reiterated the Fed’s commitment to closely monitoring economic and policy developments in the months ahead.

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3. Stronger Growth Forecasts

Economic growth projections for 2024 and 2025 were revised upward, reflecting the economy’s resilience:

2024 GDP Growth: Estimated at 2.5% (up from 2%)

2025 GDP Growth: Revised to 2.1% (previously 2%)

“Recent indicators show robust economic activity, with growth exceeding earlier expectations,” Powell noted.

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4. Labor Market Resilience

Despite some signs of cooling, the labor market remains strong. The unemployment rate is now projected at:

4.2% for Q4 2024 (down from 4.4%)

4.3% for Q4 2025 (previously expected at 4.4%)

Powell acknowledged the labor market’s strength but cautioned against potential risks:

“While the market has loosened compared to pre-pandemic levels, it remains robust. However, we anticipate further cooling in the coming quarters.”

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5. A Cautious Policy Stance

The Fed’s approach reflects a delicate balancing act between managing inflation and supporting growth. Policymakers emphasized the importance of assessing the implications of proposed tariff policies under the Trump administration before making any decisive moves.

Powell highlighted two key risks:

Moving too slowly could hinder economic activity and labor market gains.

Moving too quickly might derail progress in controlling inflation.

“It’s critical that we proceed with caution, allowing time to evaluate the potential impacts of new policies,” Powell said.

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Outlook for 2025

The Fed’s updated outlook suggests a challenging year ahead as it contends with:

Persistently high inflation, projected at 2.5%.

Slower rate cuts than previously anticipated, maintaining a cautious approach.

Ongoing monitoring of policy changes under the Trump administration.

Conclusion

The Federal Reserve’s final policy meeting of 2024 highlights a strategic shift toward caution amid economic resilience and inflationary pressures. As the central bank navigates this uncertain environment, market participants will closely watch its next moves, particularly as new economic policies take shape in 2025.

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