The Lombard Review
Economy

The Fed cuts, then takes back half of next year's cuts

Tariff inflation priced into dots

The Marriner S. Eccles Building, headquarters of the Federal Reserve Board, Washington
The Marriner S. Eccles Building, headquarters of the Federal Reserve Board, WashingtonPhoto: Federalreserve / Wikimedia Commons, Public domain
1 min read Data: FFR 4.25–4.50%; two 2025 cuts

The Federal Reserve concluded 2024 with a calculated monetary retreat. While delivering a widely anticipated 25-basis-point rate cut that lowered the benchmark rate to 4.25–4.50 per cent, the updated dot plot delivered a hawkish shock, slashing projected rate cuts for 2025 in half—from four down to just two.

A Maersk container ship at the Hai Phong international container terminal, Vietnam
A Maersk container ship at the Hai Phong international container terminal, VietnamPhoto: Nathan.cima / Wikimedia Commons, CC BY-SA 4.0

Pricing the Protectionist Regime

The FOMC explicitly adjusted its baseline forecasts to reflect higher growth, sticky core inflation, and prospective tariff shocks under the incoming administration. By signaling that the easing cycle will halt far above four per cent, Jerome Powell officially ended the aggressive monetary pivot narrative. The sovereign yield curve reacted with an aggressive bear steepening as rate cuts were priced out.

A supermarket aisle in New Orleans
A supermarket aisle in New OrleansPhoto: Infrogmation of New Orleans / Wikimedia Commons, CC BY-SA 4.0

The Fed’s December dot plot officially halved next year’s rate-cut projections, signaling that central bankers are proactively erecting monetary defenses against incoming tariff and fiscal inflation.