Hawkish reduce for Fed as ‘foggy night time’ lies forward: America’s central financial institution slashes charges for third time this yr

America’s central bank last night slashed interest rates for the third

time this year but signalled that further cuts in 2025 will be slower than previously thought.

The pre-Christmas boost for borrowers in the world’s biggest economy took rates down to a range of 4.25 to 4.5 per cent, a full percentage point lower than where they were in September.

But it was described as a ‘hawkish cut’ by economists, as projections published alongside the decision by the US Federal Reserve suggested there would be just two further quarter-percentage point cuts next year, down from four.

And Federal Reserve chairman Jerome Powell said the central bank’s decision to move at all was a ‘closer call’ than before – while next year it would be ‘cautious’ about doing so again.

The decision comes ahead of the Bank of England’s last meeting of the year today, which is widely expected to see rates in the UK left on hold.

Close call: The US Federal Reserve cut interest rates down to a range of 4.25 to 4.5%, a full percentage point lower than where they were in September

The Fed’s latest projections are the first since Donald Trump’s presidential election victory in November.

It has marked up its forecast for inflation, which is predicted to be 2.5 per cent for 2025, from a previous figure of 2.1 per cent and further away from the Fed’s 2 per cent target. 

US inflation has already been proving more stubborn than expected, ticking up to 2.7 per cent in November, a four-month high.

And there are fears that price pressures could be pushed upward by policies favoured by Trump, such as steep import tariffs, big tax cuts and immigration curbs.

Continued low unemployment and robust economic growth are also on the minds of rate-setters in deciding whether it is necessary to keep cutting rates at all.

And Powell told reporters that some Fed rate-setters were starting to take into account ‘policy uncertainty’ – a clear reference to the Trump presidency – as they made their projections.

‘When the path is uncertain you go a little bit slower – it’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down,’ he added.

He said that there would need to be progress on inflation for there to be further rate cuts.

Today, the Bank of England is expected to leave rates unchanged at 4.75 per cent.

It has lagged behind the US and the eurozone in bringing down the cost of borrowing over recent months.

But official UK figures this week showing wages growing at a higher-than-expected 5.2 per cent and inflation climbing to 2.6 per cent are likely to have cemented the Bank’s decision to stay put.