The Federal Reserve just cut interest rates, but don’t get used to falling borrowing costs: They’re likely to stay where they are for at least the next few months.

As widely expected, the Fed’s policy committee on Wednesday cut its influential key interest rate by a quarter point to a range of 4.25% to 4.5%, the lowest level since February 2023. It was the third time the Fed has cut interest rates this year, bringing it down from the two-decade high it had held for more than a year to reduce inflation. The interest rate, which influences interest rates on all types of loans, remains above typical pre-pandemic levels, and Fed officials indicated it will likely stay that way for a while.

The Fed could step on the brakes in the new year

FOMC members in their quarterly economic forecasts on Wednesday planned two quarter-point interest rate cuts for 2025, compared to the four cuts they had expected in their last forecast in September.

Analysts at Goldman Sachs said the forecasts suggest the Fed will hold its interest rate steady at its next meeting in January and not cut it again until March at the earliest.

“While the Fed has opted to round out the year with a third straight rate cut, its New Year’s resolution appears to be for a slower pace of easing,” Whitney Watson, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in a comment.

The Fed calibrates how quickly it should cut interest rates to a range where it neither slows nor stimulates the economy, called the “neutral” rate. With recent data showing stubborn inflation, Fed officials indicated they will cut interest rates more slowly than they previously expected.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess the incoming data, the evolving outlook, and the balance of risks,” the committee said in a statement identical to its own Opinion in November, apart from the addition of the phrase “scope and timing”.

Still looking for a soft landing

The rate cut was the latest maneuver in the Fed’s efforts to give the economy a “soft landing” from high inflation that spiked in late 2021 and early 2022. High interest rates should simultaneously discourage borrowing and cool the economy. There is a risk of recession and mass layoffs.

The Fed began cutting interest rates in September as inflation fell toward the Fed’s target of a 2% annual rate and the labor market slowed. The aim of the cuts was to make it easier for employers to finance new hires and prevent the recent decline in job vacancies from leading to a rise in unemployment.

More recently, progress in fighting inflation has stalled, prompting Fed officials to scale back their expectations for future rate cuts. A member of the Fed’s 12-member Federal Open Market Committee even disagreed with the decision to cut interest rates on Wednesday.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, voted against the rate cut. It was the second dissent this year after Fed Governor Michelle Bowman voted against a deeper-than-usual 50 basis point rate cut in September, preferring a 25-point cut instead.

At a news conference after the decision, Federal Reserve Chairman Jerome Powell said the decision to cut interest rates was closer than at previous meetings.

“We felt it was the best decision to promote the achievement of our twin goals of maximum employment and price stability,” Powell said. “We see the risks as two-sided. Going too slow unnecessarily undermines economic activity in the labor market, or going too fast unnecessarily undermines our progress on inflation. So we try to steer between these two risks and in balance. “We decided to make another cut.”

Update, December 18, 2024: This article has been updated to add comments from Fed Chair Jerome Powell.