Fed Rate Cuts Possible Amid Strong Economic Growth, Says Treasury Official

Dec 25, 2025, 2:55 AM

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A Treasury official has suggested that the Federal Reserve could cut interest rates next year, despite expectations of robust economic growth. Joe Lavorgna, a counselor to Treasury Secretary Scott Bessent, stated in a recent interview that the economy is on track to grow at a rate of 3% in 2024, driven by supply-side improvements and capital spending.

Lavorgna emphasized that this growth could lead to lower inflation, allowing the Fed to adjust rates without the typical concerns associated with a booming economy. He argued that if interest rates, when adjusted for inflation, remain high, they could further restrict economic activity. He noted that interest-sensitive sectors are still weak, indicating that monetary policy could have a significant impact if rates are lowered.

The backdrop for this discussion includes a recent GDP report showing a strong growth rate of 4.3% in the third quarter of 2023, largely fueled by a 3.5% increase in consumer spending and a 1.6% contribution from trade. However, there are signs of slowing business investment, with growth in this area dropping to 2.8% and equipment investment slowing to 5.4%. Lavorgna attributed some of this slowdown to the Fed's current interest rate policies, suggesting that lower rates could stimulate more construction and job creation in high-paying sectors.

Despite the optimistic outlook from the Treasury, the Federal Reserve's own projections indicate a more cautious approach, with officials currently anticipating only one rate cut for the entirety of next year. This reflects ongoing debates within the Fed regarding the need to control inflation, which remains a priority.

The potential for rate cuts comes at a time when small business optimism is also on the rise, as inflation concerns have eased. Small businesses have been a significant driver of job creation, accounting for over 70% of net new jobs since 2019. This resurgence in entrepreneurship and business applications suggests a broader economic recovery, which could further support the case for lower interest rates.

In summary, while the Treasury's perspective highlights the possibility of rate cuts in a growing economy, the Federal Reserve's cautious stance reflects the complexities of managing inflation and economic growth. The interplay between these factors will be crucial as policymakers navigate the economic landscape in the coming year.

As the situation develops, market participants will be closely monitoring both economic indicators and Fed communications to gauge the likelihood and timing of any potential rate adjustments. The balance between fostering growth and controlling inflation will remain a central theme in US economic policy discussions.

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