Research
December 18, 2024
Monetary Policy
Federal Reserve Cuts Rates for the Third Straight Meeting, but with Uncertainty Ahead
The Federal Open Market Committee (FOMC) reduced short-term interest rates by 25 basis points during its December 17–18 meeting, marking the third consecutive rate cut. Prior to the recent moves, the federal funds rate had climbed to a range of 5.25% to 5.50% following its July 2023 meeting due to significant pricing pressures and supply chain disruptions. In total, the Federal Reserve has cut the federal rate by 100 basis points over the course of the last three meetings, resulting in a new rate range of 4.25% to 4.50%.
The latest move was widely expected, but monetary policy moves into a more uncertain territory moving forward. The Federal Reserve also released economic projections for participants at the December 17–18 meeting. In September, the expectation was for an additional 100 basis points of cuts in 2025, bringing the federal funds range down to 3.25% to 3.50%. That has now shifted to a new expectation of 50 basis points of cuts for next year, to 3.75% to 4.00%. This reflects policy uncertainties, including on taxes and tariffs, and their possible implications for economic growth and inflation. With more certainty seen over the coming weeks and with incoming data, future monetary policy actions might evolve differently.
On the positive side, the FOMC statement highlighted ongoing economic growth in the U.S., with a robust labor market despite some cooling. While inflation is reportedly making progress toward the Fed’s 2% target, it remains somewhat above desired levels. With such solid economic activity in mind, Beth M. Hammack, the relatively new President of the Cleveland Federal Reserve Bank, dissented, preferring to keep interest rates unchanged at the December 17–18 meeting.
Yet, with its dual mandate to promote price stability and maximum employment, the Federal Reserve sees sufficient headway toward reaching long-term core inflation goals, supporting further normalization of interest rates to encourage economic and employment expansion. Despite the recent cuts, rates remain high enough to address persistent inflationary pressures in the economy. This balance reflects the Fed's approach to sustaining economic momentum while carefully managing inflation risks.
For the restaurant industry, this policy shift offers potential relief and opportunities. Lower interest rates generally translate to reduced borrowing costs, making it easier for businesses to finance expansion, improvements, or new initiatives. At the same time, consumers may benefit from greater access to credit and more discretionary income, potentially boosting spending in hospitality and dining. By signaling further (albeit fewer) rate reductions, the Fed indicates a cautious optimism, aiming to maintain economic momentum while carefully watching inflationary trends. This trajectory could stimulate investment and demand, benefiting sectors like restaurants that rely on consumer confidence and spending.
The latest move was widely expected, but monetary policy moves into a more uncertain territory moving forward. The Federal Reserve also released economic projections for participants at the December 17–18 meeting. In September, the expectation was for an additional 100 basis points of cuts in 2025, bringing the federal funds range down to 3.25% to 3.50%. That has now shifted to a new expectation of 50 basis points of cuts for next year, to 3.75% to 4.00%. This reflects policy uncertainties, including on taxes and tariffs, and their possible implications for economic growth and inflation. With more certainty seen over the coming weeks and with incoming data, future monetary policy actions might evolve differently.
On the positive side, the FOMC statement highlighted ongoing economic growth in the U.S., with a robust labor market despite some cooling. While inflation is reportedly making progress toward the Fed’s 2% target, it remains somewhat above desired levels. With such solid economic activity in mind, Beth M. Hammack, the relatively new President of the Cleveland Federal Reserve Bank, dissented, preferring to keep interest rates unchanged at the December 17–18 meeting.
Yet, with its dual mandate to promote price stability and maximum employment, the Federal Reserve sees sufficient headway toward reaching long-term core inflation goals, supporting further normalization of interest rates to encourage economic and employment expansion. Despite the recent cuts, rates remain high enough to address persistent inflationary pressures in the economy. This balance reflects the Fed's approach to sustaining economic momentum while carefully managing inflation risks.
For the restaurant industry, this policy shift offers potential relief and opportunities. Lower interest rates generally translate to reduced borrowing costs, making it easier for businesses to finance expansion, improvements, or new initiatives. At the same time, consumers may benefit from greater access to credit and more discretionary income, potentially boosting spending in hospitality and dining. By signaling further (albeit fewer) rate reductions, the Fed indicates a cautious optimism, aiming to maintain economic momentum while carefully watching inflationary trends. This trajectory could stimulate investment and demand, benefiting sectors like restaurants that rely on consumer confidence and spending.