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The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point but signalled a slower pace of easing next year, sending the dollar racing higher and US stocks lower. 

The Federal Open Market Committee voted on Wednesday to reduce the federal funds rate to 4.25-4.5 per cent, its third cut in a row. The decision was not unanimous, with Cleveland Fed president Beth Hammack casting a dissenting vote, with a preference for holding rates steady.

Officials’ economic projections released alongside the rate decision pointed to fewer reductions than previously forecast for 2025, underscoring policymakers’ concern that cutting borrowing costs too quickly could undermine efforts to cool price growth across the world’s biggest economy. Policymakers also lifted their projections for inflation.

Fed chief Jay Powell said that following Wednesday’s cut, the central bank’s policy settings were “significantly less restrictive” and could now be “more cautious” as they consider additional easing. He also characterised the December decision as a “closer call” than at previous meetings.

Inflation was moving “sideways”, Powell added, while risks to the labour market had “diminished”.

Wall Street bank Morgan Stanley said the Fed’s forecasts for 2025 were “much more hawkish than we anticipated”.

US government bonds fell in price after the Fed decision, with the policy-sensitive two-year Treasury yield rising 0.08 percentage points to 4.33 per cent. The dollar jumped 1 per cent against a basket of six peers, while Wall Street’s S&P 500 share index dropped 1 per cent.

The Fed’s goal is to apply enough pressure on consumer demand and business activity to push inflation back to the US central bank’s 2 per cent target without harming the jobs market or the economy more broadly.

Officials now expect to cut the benchmark rate by half a percentage point next year to 3.75-4 per cent, down from the full percentage point reduction predicted in September’s “dot plot”. Four officials pencilled in one or no additional cuts next year.

Most saw the policy rate falling to 3.25-3.5 per cent by the end of 2026, also higher than in the forecast from three months prior. 

They also raised their forecasts for inflation once food and energy prices are stripped out to 2.5 per cent and 2.2 per cent in 2025 and 2026, respectively, while they predicted the unemployment rate would steady at 4.3 per cent for the next three years.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said.

In a sign that the Fed is preparing to skip rate cuts at forthcoming meetings, the FOMC amended its language regarding future changes to its policy settings in its statement.

Wednesday’s decision was not the first this year that was opposed by a Fed official, after Michelle Bowman cast a dissent to September’s half-point reduction. That was the first time a governor voted against a decision since 2005.

The quarter-point cut was widely expected by financial markets, but came amid debate among officials over how quickly inflation was retreating towards the Fed’s 2 per cent target. The core personal consumption expenditures price index, the central bank’s preferred inflation gauge that strips out food and energy prices, rose at an annual rate of 2.8 per cent in October.

The Fed kicked off a new rate-cutting cycle in September with a bumper half-point cut, but fears about the labour market have ebbed since then and the economic outlook has brightened. That healthy state of the US economy has changed the calculus for officials as they try to settle on a “neutral” rate that neither constrains growth or drives it too high.

The central bank has described recent cuts as a “recalibration” of policy that reflects its success in knocking inflation from a peak of about 7 per cent in 2022.

On Wednesday, Powell said the Fed was in a “new phase in the process”, suggesting that the bar for future cuts would move higher as rates approached estimates of neutral.

Fed officials raised that estimate for the neutral rate again, with a majority now pencilling it in at 3 per cent. This time last year, they gauged it was 2.5 per cent.

The Fed meeting came just weeks before Donald Trump returns to the White House, having vowed to raise tariffs, deport immigrants and slash taxes and regulations. Economists recently polled by the Financial Times said the policy combination could trigger a new bout of higher inflation and hit growth.

Additional reporting by Eva Xiao in New York

In late April, a slow-moving storm over Texas and Oklahoma spawned an outbreak of 39 tornadoes. That event was just a fraction of the more than 400 tornadoes reported that month, the highest monthly count in 10 years. And the storms kept coming.

Through November, there were more than 1,700 tornadoes reported nationwide, preliminary data shows. At least 53 people had been killed across 17 states.

Not only were there more tornadoes reported, but 2024 is also on track to be one of the costliest years ever in terms of damage caused by severe storms, according to the National Center for Environmental Information. Severe weather and four tornado outbreaks from April to May in the central and southern United States alone cost $14 billion.

We will not know the final count of this year’s tornadoes until next year — the data through November does not yet include tornadoes like the rare one that touched down in Santa Cruz., Calif., on Saturday. That’s because confirming and categorizing a tornado takes time. After each reported event, researchers investigate the damage to classify the tornado strength based on 28 indicators such as the characteristics of the affected buildings and trees. Researchers rate the tornadoes using the Enhanced Fujita Scale (EF) from 0 to 5.

But 2024 could end with not only the most tornadoes in the last decade, but one of the highest counts since data collection began in 1950. Researchers suggest that the increase may be linked to climate change, although tornadoes are influenced by many factors, so different patterns cannot be attributed to a single cause.

The year’s worst storms

In May, a mobile radar vehicle operated by researchers from the University of Illinois measured winds ranging 309 to 318 miles per hour in a subvortex of a tornado in the outskirts of Greenfield, Iowa. The event, an EF4, was among the strongest ever recorded.

NASA tracked the line of destruction of the tornado over 44 miles.

NOAA estimated the damage caused by the Greenfield tornado to be about $31 million. While most tornadoes this year were not as deadly or destructive, there were at least three more EF4 storms, described by NOAA as devastating events with winds ranging from 166 to 200 miles per hour. These violent tornadoes caused severe damage in Elkhorn-Blair, Neb., and in Love and Osage Counties in Oklahoma.

Here are the footprints of 1,644 buildings in the United States that were destroyed or severely damaged by tornadoes this year, according to data from FEMA and Vexcel, a private company that uses aerial imagery to analyze natural disasters.

While losses from tornadoes occur on a regular basis every year, extreme events such as hurricanes can also produce tornadoes with great destructive capacity. In October, more than 40 tornadoes were reported in Florida during Hurricane Milton, three of them category EF3. According to the The Southeast Regional Climate Center, EF3 tornadoes spawned by hurricanes had not occurred in Florida since 1972.

A vulnerable region

Tornado detection systems have improved, especially since the 1990s, allowing scientists to count tornadoes that might have gone undetected in previous years, said John Allen, a climate scientist focused on historic climatology and analysis of risk at Michigan State University. That plays a role in the historical trend showing more tornadoes in recent decades.

While this year’s worst storms were concentrated in the Midwest, many counties across the South have seen an increase in tornado activity in the past 20 years, compared with the prior two decades. These same counties’ demographic conditions, including low incomes and large mobile home populations, make them especially vulnerable to major disasters.

“It only takes an EF1 to do significant damage to a home, an EF2 would throw it all over the place,” Dr. Allen said.

Prof. Tyler Fricker, who researches tornadoes at the University of Louisiana, Monroe, said we will inevitably see more losses in the region.

“When you combine more intense tornadoes on average with more vulnerable people on average, you get these high levels of impact — casualties or property loss,” Dr. Fricker said.

“If you have enough money, you can protect yourself,” he added. “You can build out safe rooms. You can do things. That’s not the case for the average person in the Mid-South and Southeast.”

The C.D.C. identifies communities in need of support before, during and after natural disasters through a measure called social vulnerability, which is based on indicators such as poverty, overcrowding and unemployment. Most counties in Alabama, Arkansas, Louisiana and Mississippi are both at high risk by this measure and have experienced an increase in tornadoes in the last 20 years, relative to the 1980s and 1990s.

In the states with the most tornadoes this year, most counties have better prepared infrastructure for these kinds of events.

Stephen M. Strader of Villanova University, who has published an analysis of the social vulnerabilities in the Mid-South region and their relationship to environmental disasters, said the most vulnerable populations may face a tough year ahead. While two major hurricanes had the biggest impact on the region this year, La Niña will influence weather patterns in 2025 in ways that could cause more tornadoes specifically in the vulnerable areas in the South.

Although not completely definitive, NOAA studies suggest that EF2 tornadoes, which are strong enough to blow away roofs, are more likely to occur in the southeastern United States in La Niña years.

“Unfortunately, a La Niña favors bigger outbreaks in the southeast U.S.,” Dr. Strader said. “So this time next year we might be telling a different story.”

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The billionaire Porsche-Piëch family, Volkswagen’s majority owner, has taken a hardline stance in backing the company’s plans to close several German factories, as the threat of diminished dividends looms.

Lack of progress on the restructuring, initially announced in September, has become a growing concern for the Porsche-Piëch family, which has reversed its traditional stance of avoiding confrontation with VW’s powerful works council.

According to one person briefed on discussions at recent supervisory board meetings, the family has “made clear that it is necessary to rightsize the business in order to achieve long-term competitiveness”.

VW has argued for the closure of plants in Germany as its European sales have fallen sharply. However, the company’s works council, which controls half the seats on the company’s supervisory board, has promised workers that not a single German plant will be closed.

Another person with knowledge of the discussions said it was “hardly surprising” that the Porsche-Piëch family had different priorities than some other supervisory board members, especially the works council and its ally, the state of Lower Saxony, which holds 20 per cent of VW’s voting rights.

Worker representatives have argued that while cost cuts might support profit margins in the short term, they will do little to address sliding sales in both Europe and China, the company’s most profitable market.

Executives at Europe’s largest carmaker have spent weeks locked in tense negotiations with representatives of German workers, who have already downed tools twice in the past month amid fierce disagreement over planned cost cuts.

VW’s management and unions are eager to wrap up formal wage negotiations before Christmas. After 36 hours of continuous debate, the fifth round of talks broke off briefly on Wednesday morning with both sides agreeing to resume negotiations later in the day.

At VW’s supervisory board meetings in the run-up to the negotiations, discussions have been tense. The family’s de facto head, Wolfgang Porsche, last month rejected a compromise put on the table by the works council and union, making clear that anything other than “substantial action on cost efficiency [will be a] solution”, added one person briefed on the talks.

Porsche SE has already taken a hit from the crisis at VW. Last week, it warned that the uncertainty at the carmaker and the absence of financial planning data could force it to write down its stake in VW by up to €20bn, or nearly 40 per cent.

The family also faces the risk of falling VW dividends, which last year stood at €1.4bn, at a time when Porsche SE is saddled with €5.1bn in debt. The holding company borrowed heavily in 2022 to buy a 25 per cent voting stake in sports car maker Porsche AG — allowing the family to regain direct control over the company founded by its forebears.

“The plan was to finance the interest payments and to deleverage with the dividends from Porsche and VW,” said Stifel analyst Daniel Schwarz. “That’s clearly at risk now,” he added, explaining that the family’s wealthiest members “have most of their wealth invested in this one company”.

But the family’s battle with the carmaker’s workers carries other risks.

With Berlin gearing up for snap elections early next year, the hardline plan to cut tens of thousands of jobs at VW has met significant political blowback. A growing group of politicians — including Chancellor Olaf Scholz — have spoken out against factory closures.

“Some politicians have argued that VW should not pay a dividend at all and the union said that VW should consider a lower payout ratio,” Schwarz said.

The upcoming elections will also make it less likely that the state of Lower Saxony, which owns 20 per cent of VW voting rights and tends to back employment, would turn against the works council on the plant closures.