Federal Reserve
- Bowman dissents in 11-1 vote
- No change to QE, as expected
- Economists widely expected a 25 bps cut
- Fed funds futures priced the likelihood of 50 bps at 59%
- Fed funds were in range of 5.25% to 5.50% before the decision
- Now says: The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- Repeats that economic activity had continued to expand at a solid pace
- Says job gains have slowed
- Prior statement said job gains had moderated
- Says inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.
- Prior statement said inflation had eased over the past year but remains somewhat elevated
USD/JPY was trading at 142.02 just before the decision and US 2s were trading at 3.64%. For Sept-2025, the market was in 237 bps of easing before the decision, including 114 by the end of 2024.
Highlights of the Summary of Economic Projections:
- Median at 4.4% this year vs 5.1% prior
- Median at 3.4% vs 4.1% prior Fed funds rate for end-2025
- Median at 2.9% vs 3.1% at end-2026
- Median view of longer-term Fed funds at 2.9% vs 2.8% prior
- 2024 GDP growth median +2.0% vs +2.1% prior
- 2025 GDP 2.0% vs +2.0% prior
- Unemployment rate in 2024 4.4% vs 4.0% prior
- Unemployment rate in 2025 4.4% vs 4.2% prior
- 2024 PCE inflation 2.3% vs 2.6% prior
- 2025 PCE inflation 2.1% vs 2.3% prior
- 2024 core PCE 2.6% vs 2.8% prior
- 2025 core PCE 2.2% vs 2.3% prior
The new dot plot implies 25 at the November and 25 at the December meeting. However I expect Powell to highlight that he’s prepared to go faster if employment or the outlook deteriorates.