The Federal Reserve has kept the policy rate unchanged at 5.25-5.5%, as widely expected, but there is a moderate turn in the sense that we recognize that growth “has slowed from its strong pace in the third quarter”, in addition to a recognition that “inflation has decreased over the past year. Federal Reserve Chairman Jay Powell went even further at the press conference, saying growth had slowed “substantially.” The accompanying statement also adds the word “any” to the sentence “in determining the scope of any “further policy tightening that may be appropriate to return inflation to 2 percent over time,” offering the clearest indication yet that there is acceptance within the committee that interest rates have peaked. It was a unanimous decision.
Meanwhile, their individual forecast dot plot includes a further rate cut for 2024, so they are now planning for 75 basis points of easing, up from 50 basis points in their September update. But it must also be taken into account that the final rate hike planned for September no longer exists, so the federal funds rate is now expected to be 4.6% at the end of 2024, up from 5.1%. former. While not fully reflecting the 110 basis points of cuts priced in by markets before the meeting, this shift in officials’ views has given the market the green light to push for more: the Fed is seen as a fairly conservative institution. who heavily weighs the implications of what he says, and this is a surprising change of perspective on their part.
It’s entirely possible that Gov. Chris Waller’s view on inflation is more widely shared than previously thought. He noted that if inflation continues to cool “for several more months – I don’t know how long it could last – three months, four months, five months – during which we are sure that inflation has really come down and is on track, we could then start to lower the policy rate just because inflation is lower. After all, there’s no need to wait for a recession before cutting interest rates.
Below is the updated table of their forecasts versus what they were saying in September. Beforehand, we and the consensus expected the Fed to report slightly higher GDP and inflation numbers for 2024, by 0.1 percentage points.