The Federal Reserve has again cut rates by 25 basis points, revealing internal divisions.
In the latest monetary policy meeting, the Federal Reserve announced a 25 basis point cut in the target range for the federal funds rate, from 4.5%-4.75% to 4.25%-4.5%. This marks the second consecutive 25 basis point cut following the last meeting. However, an unexpected dissent emerged during this meeting, with the Cleveland Fed president advocating for no change in rates, indicating a division within the Fed regarding interest rate policy.
The overnight reverse repurchase rate has been lowered, aligning with the lower bound of the federal funds rate target range.
The Federal Reserve also lowered the overnight reverse repurchase (ON RRP) rate by 30 basis points to 4.25%, aligning it with the lower bound of the federal funds rate target range for the first time since 2021. This adjustment may help better control market interest rates.
The assessment of employment and inflation risks remains unchanged, and the balance sheet reduction plan continues.
This meeting's statement continues to emphasize that employment and inflation risks are generally balanced and reaffirms the commitment to full employment. Meanwhile, the Federal Reserve's balance sheet reduction plan remains unchanged, continuing to reduce its holdings of government bonds and mortgage-backed securities.
The dot plot indicates an upward adjustment in interest rate expectations for the next three years.
The dot plot released by the Federal Reserve shows that officials have raised their interest rate expectations for the next three years. The median interest rate expectations for the next two years have been raised by 50 basis points, with two rate cuts expected in each of the next two years.
Economic expectations adjusted: GDP and inflation expectations raised, unemployment rate expectations lowered.
Federal Reserve officials have raised their GDP growth expectations for this year and next, while also raising their PCE inflation expectations for the next three years. The unemployment rate expectation has been lowered, showing confidence in the labor market.
The pace of rate cuts may slow.
Senior journalist Nick Timiraos, known as the 'new Federal Reserve correspondent,' pointed out that there are questions about the future magnitude and pace of rate cuts. The newly added phrase 'magnitude and timing' in the statement suggests that the pace of rate cuts may slow. This aligns with market expectations, anticipating that the number of rate cuts next year will be halved compared to previous expectations.
These decisions and adjustments by the Federal Reserve reflect its cautious attitude in responding to changes in economic growth, inflation, and the labor market. As internal divisions become apparent, the market will closely monitor the Fed's future policy direction.
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