U.S. Federal Reserve Lowers Key Lending Rate and Adjusts Future Projections

On December 18, in a notable shift, the U.S. Federal Reserve announced a reduction in its benchmark interest rate by a quarter-percentage point. This move indicates a change in the Fed's outlook on future interest rate cuts for the upcoming year.

Following a two-day meeting of the Federal Open Market Committee (FOMC), the central bank revealed that the interest rate would now be set within the range of 4.25 to 4.50 percent. This decision comes after a previous quarter-percentage-point cut made just last month, as well as a more significant 50-basis-point reduction implemented in September.

The most recent economic projections from the FOMC members now forecast the federal funds rate to decrease to 3.9 percent by the end of next year. This is a slight increase from the earlier estimate of 3.4 percent made three months ago, suggesting that only two further rate cuts are expected.

Furthermore, the latest projections reveal that inflation, as measured by Personal Consumption Expenditures (PCE), could reach 2.5 percent by the end of next year. This figure is higher than the previous estimate of 2.1 percent, indicating growing inflationary pressures.

During a press conference, Fed Chair Jerome Powell elaborated on the situation, noting that the anticipated slower pace of rate cuts reflects the elevated inflation readings observed throughout the year. He stated, "The actual cuts that we make next year will not be because of anything we wrote down today." He acknowledged the higher risks and uncertainties surrounding inflation as referenced in the Federal Reserve's summary of economic projections.

This recent adjustment in the U.S. interest rate has widened the gap between the key lending rates of South Korea and the United States to as much as 1.5 percentage points, illustrating the differing monetary policies between the two nations.

FederalReserve, InterestRate, Inflation