Fed Cuts Rate But Signals Slowing Pace of Easing Ahead

Economics
Published
Interest Rates - 2007-2024

In a widely anticipated move, the Federal Reserve’s Federal Open Market Committee (FOMC) reduced the short-term federal funds rate by an additional 25 basis points at the conclusion of its December meeting. This policy move reduces the top target rate to 4.5%.

However, the Fed’s newly published forward-looking projections also noted a reduction in the number of federal funds rate cuts expected in 2025, from four in its last projection to just two 25 basis point reductions.

The new Fed projection envisions the federal funds top target rate falling to 4% by the end of 2025, with two more rate cuts in 2026, placing the federal funds top target rate to 3.5% at the end of 2026. One final rate is seen occurring in 2027.

The Fed also increased its estimate of the neutral, long-run rate (sometimes referred to as the terminal rate) from 2.9% to 3%, which is reflective of stronger expectations for economic growth and productivity gains.

For home builders and other residential construction market stakeholders, the new projections suggest an improved economic growth environment, one in which there is a smaller amount of monetary policy easing, leading to higher than previously expected interest rates for acquisition, development and construction (AD&C) loans. Thus, more economic growth but higher interest rates.

The statement from the December FOMC summarized current market conditions as:

Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.

NAHB Chief Economist Robert Dietz provides further insights in this Eye on Housing post.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Economics

Apr 30, 2026

Fed Changes Leadership, but Powell Stays On Board

Fed Chair Jerome Powell is not expected to fully step away from the Federal Reserve. Instead, he plans to continue serving as a member of the Board of Governors as long as the Justice Department's probe into the cost of the Fed’s headquarters renovations remains active.

Workforce Development

Apr 29, 2026

Indiana Students Explore Career Paths Beyond a Four-Year Degree

The Builders Association of Elkhart County (Ind.) connects local students with hands‑on construction experiences that open their eyes to career paths beyond a four‑year degree.

View all

Latest Economic News

Economics

Apr 30, 2026

U.S. Economy Rebounded in the First Quarter of 2026

Real GDP growth accelerated in the first quarter of 2026, rebounding from a weak finish at the end of 2025, as government spending recovered following a disruptive shutdown.

Economics

Apr 29, 2026

Powell’s Chair Ends but He Keeps His Board Seat

The April meeting of the Fed’s monetary policy committee featured a lot of institutional news for a month in which the Fed kept monetary policy unchanged. The outlook for the economy and monetary policy remains unclear due to geopolitical turbulence and domestic policy uncertainty.

Economics

Apr 29, 2026

Home Building Shows Signs of Stabilization with Monthly Gain in Starts

Housing construction activity strengthened in March, with a notable rebound in both single-family and multifamily starts, signaling improved builder activity despite ongoing headwinds from financing costs and affordability constraints. While the monthly gain points to renewed momentum, year-to-date trends remain mixed, particularly in the single-family sector, and permit activity suggests some caution moving forward.