Washington: The U.S. Federal Reserve announced a reduction in its benchmark interest rate by a quarter percentage point, marking the third consecutive cut. This decision, made during a two-day Federal Open Market Committee (FOMC) meeting, reflects the central bank's efforts to address economic uncertainties, including a weakening labor market and persistent inflation.

According to Yonhap News Agency, the new rate adjustment places the key rate within a range of 3.5-3.75 percent. This recent cut has created a rate gap of up to 1.25 percentage points between the United States and South Korea. During a press conference, Fed Chairman Jerome Powell remarked that the monetary policy is now within a "broad range of estimates of its neutral value," suggesting a balance that neither stimulates nor restrains economic growth.

Powell also addressed the updated language in the Fed's statement, highlighting that the central bank is prepared to assess the "extent and timing" of future adjustments. This wording has led to speculation about a potential pause in rate cuts.

The FOMC members' median economic projections indicate that the federal funds rate might be reduced to 3.4 percent by the end of next year, consistent with the September forecast. This suggests the possibility of another quarter-percentage point cut in 2026. Furthermore, the U.S. gross domestic product is projected to increase by 1.7 percent this year and 2.3 percent next year, reflecting slight upward revisions from previous estimates.

Inflation, measured by Personal Consumption Expenditures (PCE), is expected to decrease to 2.9 percent by the year's end and 2.4 percent by the end of next year. These figures are slight reductions from earlier projections. PCE is a key indicator of household consumer spending on goods and services in the U.S.

The rate decision divided Fed policymakers, with some expressing concerns about inflation levels exceeding the 2 percent target, while others emphasized the need to support the labor market. The decision-making process was further complicated by delays in economic data releases due to a government shutdown. Among the dissenting voices, Stephen Miran advocated for a more substantial half-point rate cut, whereas Austan Goolsbee and Jeffrey Schmid preferred maintaining the current rate. Ultimately, the decision to proceed with the rate cut was supported by Fed Chair Jerome Powell and other committee members.