1. Interest rate decision
Rate cut：The committee decided to lower the target range of the federal funds rate to 4.75-5%, a 50 basis point cut, which is the first rate cut by the Federal Reserve since 2020. The interest rate decision was not unanimous, and Governor Bowman opposed the interest rate decision, preferring a 25 basis point cut. This is the first time since 2005 that a Federal Reserve governor has opposed an interest rate decision.
2. Balance sheet
The Committee maintained the pace of balance sheet reduction unchanged, with a monthly redemption cap of $25 billion for U.S. Treasury securities and a monthly redemption cap of $35 billion for agency debt and MBS.
3. Economic Outlook
Economic Activity: Recent indicators suggest that economic activity continues to expand at a solid pace.
Employment situation: Job growth slowed and the unemployment rate rose, but remained low.
Inflation: Inflation has moved further toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee is more confident that inflation will continue to move toward 2 percent and judges that risks to achieving its employment and inflation objectives are roughly balanced. The economic outlook is uncertain, and the Committee is mindful of risks to both sides of its dual mandate.
4. Changes in conference statements
Job growth description: changed from "modest" to "slow".
Inflation statement: Changed from "Inflation has eased somewhat over the past year but remains somewhat elevated. In recent months, some progress has been made toward the Committee's 2 percent inflation objective" to "Inflation has moved further toward the Committee's 2 percent objective but remains somewhat elevated."
The dual mandate statement was changed from "The Committee judges that the risks to achieving its employment and inflation goals continue to be better balanced" to "The Committee has increased its confidence that inflation will continue to move toward 2% and judges that the risks to achieving its employment and inflation goals are roughly balanced."
Reasons for interest rate decision: The reason for the rate cut was "in light of the progress on inflation and the balance of risks"; deleted "the Committee believes that it would be inappropriate to lower the target range until there is greater confidence that inflation is moving sustainably towards 2%"; changed "the Committee is firmly committed to restoring inflation to the 2% target" to "the Committee is firmly committed to supporting maximum employment and restoring inflation to the 2% target".
5. Dot plot and economic forecast
Interest rate target: The dot plot shows that the median expected end-point interest rate in 2024 is 4.4%, lower than the 5.1% in the June 2024 meeting, implying a 25-50 basis point rate cut this year. From the specific votes of the dot plot, there are 2 votes that believe that the interest rate will remain at 4.75-5% in 2024, 7 votes that there is room for a 25 basis point cut, 9 votes that there is room for 50 basis points, and 1 vote that there is room for 75 basis points. At the same time, the target interest rate center in 2025 is lowered by 70 basis points from the dot plot in June 2024 to 3.4%. In addition, the dot plot again raised the long-term interest rate level from 2.8% to 2.9% (the June SEP was raised from 2.6% to 2.8%), which may indicate that the Federal Reserve has once again raised its assessment of the long-term neutral interest rate level.
Economic forecast: Compared with the June 2024 interest rate meeting, this meeting slightly lowered the US GDP growth forecast and raised the unemployment rate forecast for this year and next year. In terms of inflation forecast, this year's PCE year-on-year growth rate was lowered from 2.6% in June to 2.3%, and the core PCE year-on-year growth rate was lowered from 2.3% in June to 2.1%. The PCE and core PCE year-on-year growth forecasts for next year were slightly lowered.
6. Powell's speech highlights
Interest rate path: Powell said that 50 basis points is not a new rate cut rhythm, and the Fed does not have a preset monetary policy path. He emphasized that subsequent interest rate decisions will be "meeting by meeting" and the Fed is not "behind the curve."
Job market and economic growth: Powell believes that the current economic growth and job market are both solid. The job market is slightly looser than in 2019, similar to 2017-2018, and there is no sign that the possibility of an economic downturn (Powell used the word downturn instead of recession) has increased. Powell mentioned "keep it there" twice, once for the job market and once for economic growth, intending to say that the current economic situation and job market are in good condition, and the Fed's 50 basis point rate cut is aimed at maintaining the current situation.
On inflation: Powell said he had not declared victory in the fight against inflation, but the Fed's confidence in inflation returning to target levels has increased.
Dual mission: Powell repeated the content of the statement at the press conference, believing that the risks on both ends are roughly balanced. Overall, Powell is optimistic about the economic situation and the job market, and still depicts a "soft landing" picture.
