#Fed Interest Rate Cut and Policy Outlook:
The Federal Reserve has implemented its anticipated quarter-point rate cut, for a total of 100 basis points for the year. This marks the end of the Fed's policy adjustments, and Chairman Jerome#Powell , suggests a more cautious approach from now on. Notably, Cleveland Fed President Beth Hammack, who just joined the FOMC, dissented in favor of keeping current rates. The dissent, the first from a regional chair since 2022, highlights the growing divisions within the committee, where inflation is proving harder to control than expected.
Future Policy Projections:
The Fed surprised markets with its updated policy projections. Contrary to expectations of more aggressive easing in 2025, officials now foresee only two rate cuts, compared with the three many analysts had predicted. The timeline for inflation to return to its 2% target has also been pushed back to 2027, a year later than previously expected.
Press Conference Comments:
Powell said future rate cuts would depend on progress in reducing inflation, but refrained from offering a detailed roadmap for 2025, stressing that adjustments would be needed depending on economic developments.
Impact of Incoming Management and Neutral Rate Adjustment:
The approaching Trump administration has changed expectations for the economy in the coming year. Powell noted that some Fed officials have begun to include potential new policies in their forecasts, but that specific policies and their impacts remain uncertain. The Fed also revised its neutral interest rate forecast upward, suggesting rates could remain higher than previously thought.
Market Response:
Markets reacted negatively to the Fed’s decision. The S&P 500 fell 2% in afternoon trading in New York, its worst performance on a Fed decision day since January. Two-year Treasury yields rose 11 basis points to 4.35% and the dollar strengthened.
