The Federal Reserve on Wednesday announced its third consecutive interest rate cut, lowering the benchmark rate by 25 basis points amid economic data showing that inflation remains above the central bank's target rate.

With a 25 basis point cut, the benchmark federal funds rate would be in the 4.25% to 4.5% range. The Fed's move follows a 25 basis point cut in November and a larger-than-usual 50 basis point cut at the September meeting, which was the first reduction in rates since March 2020 and took it from a range of 5.25% to 5.5% - the highest level since 2001.

The Federal Open Market Committee (FOMC), the group within the Fed responsible for setting monetary policy, said in a statement that "labor market conditions have generally eased, and the unemployment rate has increased but remains low" and while inflation has made progress. towards the 2% objective, it "remains quite high."

"The Committee seeks to achieve maximum employment and inflation at a rate of 2 percent over the long term. The Committee assesses that the risks to achieving its employment and inflation goals are roughly balanced. The economic outlook is uncertain, and the Committee is concerned about the risks to both sides. its dual mandate," the FOMC added.

One member of the FOMC, Cleveland Fed President Beth Hammack, disagreed with the decision to cut rates and opted to keep the benchmark rate in the 4.5% to 4.75% range.

The FOMC also released a summary of economic projections, which reflected two rate cuts in 2025, two cuts in 2026 and one cut in 2027.

The summary showed the median federal funds rate at 4.4% at the end of 2024, before declining to 3.9% in 2025, 3.4% in 2026 and 3.1% in 2027. The forward-looking projection was higher than the Fed's projection in September, with a median of 2025 and 2026 each one and a half points higher and 2027 figures 0.2 percentage points higher.

It also projected that the personal consumption expenditures (PCE) index, which is the Fed's preferred gauge of inflation, will end this year at 2.4% and will be 2.5% in 2025 – up from 2.1% in the previous projection released in September. PCE will then decline to 2.1% in 2026 before reaching 2% in 2027 and in the longer term.

This is a developing story. Please check back for updates.