Fed cuts rates by quarter percentage point — and rips up playbook for next year

​The Federal Reserve gave investors one last holiday gift yesterday, cutting interest rates by a quarter percentage point as expected. The real focus at Wednesday’s press conference, though, was what the Fed will do next year.

The Fed has pretty much ripped up its playbook for next year. In September, Fed officials penciled in four interest rate cuts for 2025. In new projections released Wednesday, they whittled that down to two.

The Fed has been lowering rates to stimulate the economy and job growth. But too many rate cuts could fuel inflation, which is still stuck above the Fed’s 2% target. I asked Fed Chair Jerome Powell if the Fed will just have to settle for inflation that’s closer to 2.5%.

“No, we’re not going to have to settle for that,” he responded. “We certainly have every intention and expectations that we’ll get inflation back sustainably to 2%. And I am confident we will achieve that.”

Which begs the question: Could the Fed actually raise interest rates next year? “You don’t rule things completely in or out in this world. That doesn’t appear to be a likely outcome,” Powell said.

For now, the Fed is expected to pause its rate cutting at its meeting next month. This week’s decision to lower rates wasn’t unanimous. Cleveland Fed President Beth Hammack wanted the rate reduction pause to start immediately.