The Federal Reserve voted to reduce the federal funds rate by 25 basis points, marking the first cut in over four years. The decision reflects evolving inflation data and a cautious approach to economic growth.
- Federal funds rate reduced by 25 basis points to 4.75%–5.00%
- First rate cut since June 2020
- Core PCE inflation at 2.8% year-over-year in November
- U.S. GDP growth slowed to 2.1% annualized in Q3 2024
- S&P 500 rose 1.2% post-announcement, 10-year Treasury yield fell to 4.12%
- 30-year fixed mortgage rate now averages 6.85%
The Federal Reserve announced a 0.25 percentage point reduction in the federal funds rate range, bringing it to 4.75%–5.00%, effective immediately. This marks the first rate reduction since June 2020 and aligns with market expectations, though the accompanying commentary signaled a more cautious stance than anticipated. The decision was unanimous among the Federal Open Market Committee (FOMC) members, but the accompanying statement emphasized persistent inflationary pressures, particularly in services and housing sectors. Core inflation remained above the Fed's 2% target, with the Personal Consumption Expenditures (PCE) index rising 2.8% year-over-year in November, suggesting that a pause in rate cuts may be imminent. Recent economic indicators included a modest 2.1% annualized GDP growth in Q3 2024, down from 3.4% in Q2, and a jobless rate of 4.2%, up from 3.9% in early 2024. These data points contributed to the Fed's decision to proceed with a measured cut while retaining the option to adjust policy in future meetings. Financial markets reacted swiftly: the S&P 500 rose 1.2% in after-hours trading, the 10-year Treasury yield fell to 4.12%, and the U.S. dollar weakened 0.8% against a basket of major currencies. Mortgage rates dipped slightly, with the 30-year fixed rate now averaging 6.85%, down from 7.02% at the start of the month.