As widely expected, the Federal Reserve’s Federal Open Market Committee announced another 25-basis-point rate cut. That makes the federal funds rate range 4.25% to 4.50%. The future expectation, however, no longer officially looks like a continued string of additional parings.
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” the FOMC said in its statement. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The tension is seen in the Fed’s economic projections and the so-called dot plot. The median expectation for Personal Consumption Expenditure inflation for 2025 jumped from 2.1% in September to 2.5% in the December meeting. Going forward, 2026 went from 2.0% to 2.1%. Under the current view, it will take until 2027 to get back to a 2.0 percent rate of inflation. Core PCE inflation in the median projection is also 2.5%, 2.2% in 2026, and finally 2.0% in 2027.
Recommended For You
Looking at the central tendency in the September 2024, meeting, 2025 PCE inflation would have been 2.1% to 2.2% and then 2.0% in 2026 and 2027. Core PCE inflation would have been 2.1% to 2.3% in 2025 and 2.0% thereafter.
Now, the PCE inflation range is 2.3% to 2.6% in 2025, 2.0% to 2.2% in 2026, and 2.0% in 2027. Core PCE inflation would be 2.5% to 2.7% in 2025, 2.0% to 2.3% in 2026, and 2.0% in 2027.
“I don’t believe they should have cut rates,” David Scherer, co-chief executive of Origin Investments, wrote in prepared remarks. “The Fed should hold off until there is data that specifically calls for a cut.”
“The Fed's 25 basis point rate cut provides some relief but reinforces the 'higher-for-longer' interest rate environment, emphasizing that commercial real estate now operates in a fundamentally different landscape than before the 2022 rate hikes,” Greg Friedman, managing principal and chief executive of CRE lender Peachtree Group. “The latest CPI report points to a challenging path toward the Fed's inflation target, with the 10-year Treasury yield potentially climbing further due to market expectations and inflationary pressures from upcoming policy shifts.”
“While the Fed’s pace of rate cuts may frustrate many, particularly those in industries that rely heavily on debt and capital market financing, like commercial real estate, there is rationale to the approach,” Omar Eltorai, Director of Research at Altus Group, wrote in an emailed note. “Sometimes, it might seem like the Fed is taking too long to make a move, but it is because FOMC members are trying to ensure they do not make any counterproductive or unsubstantiated decisions.”
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
