After the Federal Reserve meeting last week, we saw interest rates improve another leg lower. The Fed mentioned that it would not hike the federal reserve rate and kept rates on hold for the third-straight meeting. This move was highly anticipated by market experts and was well received by the stock and bond markets once it occurred. The Fed also released its “dot plot” of Fed member forecasts for where policy rates will be going forward. Their plan showed that 11 out of 19 members expect cuts of between 50 and 75 basis points and 5 out of 19 members expect larger cuts between 100 and 150 basis points in 2024. For 2025, there are 12 members who expect cuts to be in the range of 150 basis points to 200 basis points.
The Fed sounded much more dovish, or accommodative, mentioning that meaningful progress on inflation has been made and it downgraded its view of the economy which it had been in the camp of being healthy. Chairman Powell outright said that the Fed will not be waiting for inflation to reach its target, 2% on the core PCE, before cutting and would do so well in advance of it to account for the reporting lags. When asked what inflation would have to be for the Fed to cut, Powell did not commit, but it seems if we see it get under 3% that the Fed would give the green light to cut its rate. The Fed is finally starting to look a bit into the future, instead of in the rearview mirror, which is a good thing for rates. Unlike in previous meetings, Powell did not try to downplay the market’s expectations of cuts next year.
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By: Jon Iacono