Fed's Caution

The US Federal Reserve's decision to lower its benchmark interest rate to a range of 4.25-4.50 per cent marks a turning point in its monetary policy.

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While the move aims to ease financial conditions, the US central bank's tempered outlook for further rate cuts highlights the complex interplay of persistent inflation and an evolving economic landscape.

This shift, underscored by Fed Chair Jerome Powell's cautious tone, reflects not only economic challenges but also uncertainties surrounding potential policy changes under the incoming Trump administration. Inflation remains a persistent thorn in the Fed's side. Despite significant progress since its peak in 2022, recent months have seen inflation plateau, particularly in areas like shelter costs.

This stagnation has pushed policymakers to reassess their trajectory. Core inflation is projected to remain above the Fed's 2 per cent target through 2025, a stark reminder of the road ahead. The implications of this are clear: rate cuts, once anticipated as a near-term solution, are now tethered to measurable progress on price stability.