The Federal Reserve Open Market Committee (FOMC) reduced the federal funds rate by 25 basis points (bps), lowering the target range to 3.5%-3.75%. The move comes after consecutive quarter-point cuts at each of the prior two meetings.
There were minimal changes to the statement. However, a slight tweak to the reference to further rate cuts reinforced a more hawkish tone. The bolded portion reflects the revised verbiage: “In considering the extent and timing of additional policy adjustments to the target range” – suggesting a higher bar for further policy easing.
The statement also noted that, “the Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserve on an ongoing basis”.
Accompanying the statement, the FOMC also released a revised set of economic forecasts, known as the “Summary of Economic Projections” (SEP). The SEP represents the median of the individual forecasts submitted by each of the FOMC participants. Relative to the September update:
- The median projection for real GDP growth – as measured on Q4/Q4 basis – was upgraded to 1.7% (previously 1.6%) in 2025, 2.3% in 2026 (previously 1.8%) and 2.0% (previously 1.9%) in 2027. The long-term outlook remained unchanged at 1.8%.
- The median year-end unemployment forecast for 2025 and 2026 were unchanged at 4.5%, and 4.4%, respectively, while 2027 was nudged lower to 4.2% (previously 4.3%).
- Core PCE inflation – the Fed’s preferred inflation gauge – was revised a touch lower to 3.0% for 2025 (previously 3.1%) and to 2.5% in 2026 (previously 2.6%) but was unchanged at 2.1% for 2027.
- Lastly, the median projection for the federal funds rate was kept unchanged and suggest just one additional quarter-point cut in both 2026 and 2027.
Nine of the twelve FOMC members voted in favor of today’s decision. Stephen Miran (again) dissented in favor of a larger 50 bps cut, while Jeffrey Schmid and Austan Goolsbee voted for no change to the policy rate this meeting. The last time there were three dissenters at a policy decision was in 2019.
Key Implications
A lot of ink had been spilt leading up to today’s announcement of whether the Fed would or would not cut rates for a third consecutive meeting. While the FOMC ultimately decided to push forward with another cut, the statement and accompanying projections had a hawkish tilt, suggesting a higher bar for future rate cuts. This view is likely to be further reinforced by Chair Powell at the press conference, which will start at 2:30 PM ET.
Fed futures were little changed following the announcement, with the next cut not fully priced until June – a view that aligns to our forecast. But it’s hard to have much conviction in that call in the absence of timely economic data. November’s employment and CPI reports (to be released on December 16th and 18th, respectively) will shed some much-needed light on recent hiring and inflation trends and could materially shift our view and market pricing on the extent and timing of further policy easing. Stay tuned!
