FOMC Preview: Fed to Cut Rates by 25bps

Most analysts expect the FOMC to cut the federal funds rate by 25bps at this week’s meeting, lowering the target range to 4 1/4 to 4 1/2 percent. However, most market participants now expect the FOMC to pause in January and are divided on whether to cut rates at the March meeting.

We expect the Fed to cut rates by 25bps at its December meeting. Powell is likely to indicate a slower pace of cuts after that, including a pause in Jan, in his press conference. The dot plot should show three cuts in 2025 and a higher neutral rate. Accordingly, we believe the macro projections point to slightly stronger inflation next year and higher growth over the long term. Policymakers will not consider Trump’s agenda in their base case, but the balance of risks should provide insight into their assessment of potential changes.