TODAY'S WEBINAR:
 BNB Chain: Building Towards the “One BNB” Vision 2:00PM-3:00PM ET

Markets decline, FOMC projects 2 cuts in 2025, down from 4 in September 

Alexa Sinsheimer

The FOMC announced a quarter-percentage-point cut to its benchmark rate. That marks the third consecutive decrease this year, bringing the target range down to 4.25%-4.50%. The benchmark rate is now a full percentage point lower since the cutting cycle began in September of this year. 

The last time the benchmark rate hit these levels was in Dec. 2022, when the committee was still in the process of hiking rates to tame multidecade highs in inflation. More recently, the Fed had shifted focus toward the second aspect of their dual mandate: supporting “maximum sustainable employment.” Inflation data from September and October once again brought the balance of the dual mandate into focus. 

At today’s press conference, Powell stated that risks to inflation and the job market are now roughly the same. That will be key to watch as how the Fed balances its dual mandate could determine the future trajectory of rates. 

Does the current economic backdrop warrant lower rates? Today’s decision indicates that the “recalibration regime” is indeed still in play despite the tick up in inflation and/or inflation expectations. However, the pace of cuts to come is now top of mind for investors.

The closely watched “dot plot”, which displays members’ future rate expectations, now projects two cuts next year, down from the four estimated in September. 

Stocks, which have been in a “zone of hesitation”, sold off on today’s news. All of the major indices finished the day lower.

Some Fed watchers may recall November’s press conference, which came just a day after a historic U.S. election, where Powell was pummeled with questions on the incoming administration. This time, too, Powell was asked to speak on the committee’s approach. The Chair was willing to say slightly more at this meeting, stating “some people did take a very preliminary step and start to incorporate…highly conditional estimates of economic effects of policies into their forecast at this meeting and said so in the meeting. So we have people making a bunch of different approaches to that. But some did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation.” 

Were those preliminary estimates behind the slightly higher forecast for inflation within the Summary of Economic Projections?  Estimates for PCE, the Fed’s preferred measure, came in at 2.4% for headline and 2.8% for core, up from 2.3% and 2.6% respectively back in September. 

All of that being said, the chair once again emphasized data dependence and a meeting by meeting approach. 

To that end, we wish you a very happy and healthy holiday season and look forward to our first FOMC of 2025 together on January 28-29! 

More from the author

Alexa Sinsheimer
Share
Disclosures (show)
FS Insight

Sign in to read the report!

We have detected you are an active member!

Ray: 2f1e0a-bc90e1-012ae2-100f00-40310f

Want to receive Regular Market Updates to your Inbox?

I am your default error :)

Events

Tickers

Trending tickers in our research