In a widely expected move, the US Federal Reserve Board (Fed) lowered its policy interest rate at a third consecutive meeting. This capped off a year where the Fed shifted its policy stance, loosening policy as inflationary pressures moderated and the labour market showed signs of slowing. Lower interest rates have helped support US and global equity markets. The S&P 500 Index in the US has risen over 23% in 2024, as of December 18.

• The Fed lowered its federal funds rate by 0.25% to a target range of 4.25%–4.50%. This was the Fed’s third consecutive rate cut to close out 2024. In total, the Fed has cut rates by 100 basis points (bps) this year.
• The Fed said it would likely cut interest rates in a gradual manner. The US central bank noted that the labour market has improved since the downturn earlier in the year. Furthermore, inflation remains above its 2% target.
• In its outlook, the Fed expects stronger economic growth this year and next compared to its previous projections, with inflation to remain elevated and above its target. As a result, Fed officials now expect to cut interest rates twice next year, compared to their earlier projection of four.
• Another major central bank makes its final interest-rate announcement of 2024 today. The Bank of England has lowered its policy interest rate twice in 2024 by a total of 50 bps. It currently stands at 4.75%.

After two years of rising interest rates amid elevated inflationary pressures, 2024 brought a shift towards loosening monetary policy for several major central banks. Attention has turned from taking a bit of steam out of the economy to adding it back in. However, the US economy remains stronger than expected, which is leading the Fed to take a rather gradual approach compared to some other central banks.

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