The Federal Reserve has lowered its benchmark interest rate by 0.25 percentage points, setting the new range at
4.25% to 4.5%.
This is the third time this year the central bank has cut rates, following reductions in September and
November.
The move is aimed at helping the economy grow by making borrowing cheaper for businesses and individuals.
When interest rates are lower, it encourages people to take loans and invest, which boosts economic activity. The Federal Reserve also made another small adjustment by lowering the rate for cash held overnight at its reverse repo facility to 4.25%.
This helps manage the flow of money in the financial system and ensures stability as the year ends, a time when financial markets can be unpredictable.
The decision comes as the Federal Reserve continues to address challenges with inflation, which is still higher than
its target of 2%. The central bank is trying to find a balance between encouraging economic growth and keeping prices stable.
Federal Reserve Chair, Jerome Powell, said the bank will keep a close eye on the economy and make decisions
based on the latest data.
He said the economy is showing signs of strength but there are still uncertainties that require careful planning.
Earlier this year, the Federal Reserve began reducing interest rates to support the economy. In September 2024, it
cut the rate by 0.5 percentage points to a range of 4.75% to 5%.
This was followed by another reduction in November, bringing the rate down to 4.5% to 4.75%. These actions reversed a period of rate hikes that began in March 2022, when the Federal Reserve raised rates to combat high inflation. By July 2024, the rate had reached a range of 5.25% to 5.5%, its highest level since 2001.
Looking ahead, the Federal Reserve has indicated a more gradual approach to rate adjustments. Projections suggest
only two rate cuts in 2025, compared to earlier forecasts of four reductions.
