EconoFACTS

September 18, 2024 | 15:09

FOMC Policy Announcement & SEP — Rate Cut Kickoff

Economist

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Michael Gregory , CFA

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

The FOMC cut policy rates by 50 bps today, lowering the target range for the fed funds rate to 4.75%-to-5.00%. Apart from the market pricing in more than half this move, the reason for the large start was clear in the policy statement… inflation had improved, and the labour market had deteriorated sufficiently to warrant a bigger (than 25 bp) action. The statement said (the underlines are ours): “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.” In the July statement, the confidence had not yet been gained and the risks were only moving into balance. The new statement also said: “The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.” (The underlined part was new.)

The forward guidance from July’s statement was essentially repeated: “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” And there was one dissent, with Governor Bowman in favour of only a 25 bp action today.

And more cuts are being signalled. The Summary of Economic Projections (SEP) and its ‘dot plot’ showed the median FOMC projection sported a further 50 bps of cuts for this year to a 4.375% range midpoint, 100 bps next year to 3.375%, and 50 bps in 2026 to 2.875%. The latter is the new, higher longer run or neutral level, which was lifted by 12.5 bps. Interestingly, a 50 bps cut for today and a total 100 bps in total easing for this year appears to have been a close call. There were 10 participants projecting at least 100 bps of cumulative rate cuts (only one at 125 bps) and nine forecasting 75 bps or less (with two calling for no further actions).

The median economic projections were modified as expected. For 2024Q4, real GDP growth was revised down by 0.1 ppts to 2.0% y/y and the jobless rate was revised up by 0.4 ppts to 4.4%. Total and core PCE inflation were downgraded to 2.3% y/y and 2.6% (down 0.3 ppts and 0.2 ppts, respectively). The unemployment rate was also lifted by 0.2 ppts in both 2025 and 2026, to 4.4% and 4.3%, respectively—now running above the 4.2% longer run or natural level. Inflation returns to the 2% target by 2026Q4 as before.

In the press conference, Chair Powell said policy was not on a “preset course” and would be decided on a “meeting-by-meeting” basis. We reckon the course will be 25 bps per meeting through to March.