Fed Watch

Capitulation: Dovish Shift for Fed at December FOMC Meeting

The Federal Reserve once again kept rates unchanged at the December 13 FOMC meeting, leaving them at levels set on July 26, 2023 and strengthening our long-held conviction that the Fed might be done with hikes for this cycle. Washington Policy Strategist Tom Block had previously emphasized that “Chair Powell strives to achieve a unanimous vote by the Committee when it reaches rate decisions,” and this month, Powell succeeded again. As it has in previous meetings, the Fed acknowledged the continued easing of inflation while reiterating its commitment to an inflation target of 2%. 

Unlike previous months, the Fed’s projections signaled expectations for as many as three cuts in 2024 (assuming the Fed follows its pattern of changing rates in increments of 0.25%). Given the disparity in the Committee’s previous inflation projections, and how inflation data for the past several months has actually turned out, this was not a surprise for us. In fact, Lee went so far as to suggest that the Fed needed to make a dovish move on Wednesday, arguing that Committee members had been ignoring data that showed inflation falling. 

The Fed's September SEP (summary economic projections) showed median expectations for Core PCE YoY of +3.7%. Yet, as Lee pointed out, “Oct Core...

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