FOMC Preview: Fed to Cut Rates 25bp

Most analysts expect the FOMC will cut the federal funds rate at the meeting this week by 25bp lowering the target range to 4 1/2 to 4 3/4 percent.

Currently almost all market participants are expecting a 25bp cut this week. Market participants are also pricing in another 25bp cut in December.

From BofA:

We expect the Fed to cut rates by 25bp in November. … Chair Powell’s message in the press conference should remain optimistic, particularly given the recent robust data flow. Powell is likely to emphasize data dependence once again, and provide little forward guidance about the policy path.
emphasis added

From Goldman:

We continue to expect the FOMC to lower the fed funds rate by 25bp at the November and December meetings.

Projections will NOT be released at this meeting. For review, here are the September projections.

Since the last projections were released, economic growth has been above expectations, the unemployment rate is below expectations, and somewhat inflation lower than expected (although there are some “base effects” that might push PCE inflation up in Q4).

The FOMC will look through the employment report released Friday because of the impact of hurricanes and the Boeing strike on job gains in October.

The BEA’s second estimate for Q3 GDP showed real growth at 2.8% annualized, following 3.0% annualized real growth in Q2, and 1.6% in Q1. Current estimates for Q4 GDP are around 2.6%. That would put real growth in 2024, Q4 over Q4, at 2.5% – well above the top end of the September FOMC projections.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP¹
Projection Date	2024	2025	2026	2027
Sept 2024	1.9 to 2.1	1.8 to 2.2	1.9 to 2.3	1.8 to 2.1
June 2024	1.9 to 2.3	1.8 to 2.2	1.8 to 2.1	—

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.1% in October. This is below the low end of the September projections.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate²
Projection Date	2024	2025	2026	2027
Sept 2024	4.3 to 4.4	4.2 to 4.5	4.0 to 4.4	4.0 to 4.4
June 2024	3.9 to 4.2	3.9 to 4.3	3.9 to 4.3	—

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of September 2024, PCE inflation increased 2.1 percent year-over-year (YoY). This is below the low end of the September projections.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation¹
Projection Date	2024	2025	2026	2027
Sept 2024	2.2 to 2.4	2.1 to 2.2	2.0	2.0
June 2024	2.5 to 2.9	2.2 to 2.4	2.0 to 2.1	—

PCE core inflation increased 2.7 percent YoY in September. This is in the range of FOMC projections for Q4.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation¹
Projection Date	2024	2025	2026	2027
Sept 2024	2.6 to 2.7	2.1 to 2.3	2.0	2.0
June 2024	2.8 to 3.0	2.3 to 2.4	2.0 to 2.1	—