The Fed cuts interest rates once again in its final decision of the year

• The Federal Reserve cut interest rates by 25 basis points in its last decision of 2024.
• It marks the third consecutive rate cut of the year.
• Powell said the Fed is likely to move more cautiously in 2025 as it works to lower inflation.

The nation's central bank cut interest rates in its final decision of 2024.

On Wednesday, the Federal Open Market Committee announced an interest-rate cut of 25 basis points, the third rate cut Americans have received this year. The decision fell in line with market predictions that estimated a rate cut was overwhelmingly likely for the Federal Reserve's December meeting.

The Fed's Summary of Economic Projections, released alongside the interest rate decision, also forecasts two interest-rate cuts for 2025.

The interest-rate cut comes one week after the latest inflation data — the consumer price index rose 2.7% year-over-year in November, an uptick from 2.6% in October and 2.4% in September. Accelerating inflation could signal that the Federal Reserve may move more cautiously in the coming year.

"There's the risk that we move too quickly and undermine the progress we've made on inflation, and there's the risk that we move too slowly and unnecessarily undermine the labor market," Fed Chair Jerome Powell said during The New York Times' DealBook conference on December 4. "And we're trying to be in that middle place and get it just right so that we continue to get inflation coming down. "

Powell said during the conference that "the downside risks appear to be less in the labor market," and the "good news" is that the Fed can afford to move more cautiously in its coming decisions. The three-month average job gain in November was around 173,000, coming in strong despite being lower than early 2024.

Other Fed leaders have reiterated Powell's sentiment that the central bank should consider moving slowly in 2025. Beth Hammack, president of the Cleveland Fed, said during remarks on December 6 that "with the possibility that policy may not be far from neutral, I believe we are at or near the point where it makes sense to slow the pace of rate reductions."

"Moving slowly will allow us to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy," she said.

President-elect Donald Trump's policies add another layer of uncertainty to the Fed's decisions over the next year. Trump has proposed broad tariffs on imports from key trading partners, including China and Canada, and if the tariffs are implemented, they would likely increase consumer prices.

Powell said during the DealBook conference that there are too many unknowns around Trump's proposals to consider any policy changes at this point.