Fed Continues Rate Cuts Towards Neutral Level

The U.S. Federal Reserve has continued its interest rate cut cycle as expected, reducing the target range by 25 basis points to 4.50-4.75 percent. The central bank stated these actions aim to reduce the restrictiveness of monetary policy, citing a cooling labor market and inflation nearing its 2 percent target.

Federal Reserve Chair Jerome Powell did not specify the exact neutral interest rate level or the timeline for reaching it. Powell indicated that decisions on future rate adjustments will depend on incoming economic data, rather than providing specific forward guidance.

Analysts suggest the Fed is unlikely to consider a pause in rate cuts at its upcoming December meeting. Powell's remarks conveyed confidence in the ongoing disinflation trend. While rental inflation might show some stickiness, the overall decline in price pressures supports continued rate reductions.

The federal funds rate target range is projected to be between 4.25 and 4.50 percent by the end of the year. According to analysts at Hermann Bantleon GmbH, this level remains significantly above the Fed's estimated neutral rate of approximately 3.00 percent. Further 25-basis-point cuts, totaling 75 to 100 basis points, are anticipated in the first half of 2025. Subsequent actions will also depend on the economic policies of the new administration.