The Fed Reduces Rates as Expected

The Federal Reserve has announced its first reduction in borrowing costs since December. Newly appointed Governor Stephen Miran was the sole member to vote against the 25 basis point cut, advocating instead for a half-point reduction. In addition to the rate cut, the central bank released updated economic projections. The Fed anticipates an additional 50 basis points decrease by the end of 2025, followed by a quarter-point cut in 2026, slightly exceeding previous expectations from June. GDP growth forecasts have been revised upward for 2025, now projected at 1.6% compared to 1.4% in the June forecast. Projections for 2026 and 2027 have also been adjusted, with expected growth rates of 1.8% and 1.9%, respectively. The Personal Consumption Expenditures (PCE) inflation rate is expected to remain at 3% for this year, unchanged from June, but the forecast for 2026 has been raised to 2.6%, up from 2.4%. Additionally, the core PCE projection has increased from 2.4% to 3.1% for 2025, with a revised forecast of 2.6% for 2026, compared to the previous estimate of 2.4%. The unemployment rate is still expected to be 4.5% for 2025, but has been revised down to 4.5% for the following year.