The Fed is tearing up its program for next year and reducing expected interest rate cuts

​The Federal Reserve gave investors one last Christmas present yesterday, cutting interest rates by a quarter of a percentage point, as expected. But the real focus of Wednesday’s press conference was what the Fed will do next year.

The Fed has pretty much torn up its program for next year. In September, Fed officials planned four rate cuts for 2025. In new forecasts released Wednesday, they reduced those to two.

The Fed has cut interest rates to stimulate the economy and job growth. But too many rate cuts could stoke inflation, which is still above the Fed’s 2 percent target. I asked Fed Chair Jerome Powell whether the Fed will simply have to settle for inflation closer to 2.5%.

“No, we don’t have to settle for that,” he replied. “We definitely have every intention and expectation that we will bring inflation down to 2% sustainably. And I am confident that we will succeed.”

This begs the question: Could the Fed actually raise interest rates next year? “You don’t completely govern things in this world, whether they’re okay or not. That doesn’t seem like a likely outcome,” Powell said.

The Fed is expected to pause its rate cuts at its meeting next month. The decision to cut interest rates this week was not unanimous. Cleveland Fed President Beth Hammack wanted the pause in interest rate cuts to begin immediately.