MNI: Fed Cuts 50BPS, Signals 50BPS More By December
The Federal Reserve kicked off the monetary easing cycle with a bang Wednesday, slashing interest rates by a half percentage point and signaling further reductions to come in an effort to ward off further deterioration in the job market.
The FOMC's Summary of Economic Projections now shows officials expect to cut rates by another 50bps this year, down to 4.4%, and 100bps next year to 3.4%. That compares to just a single rate cut for 2024 in the June SEP, which had seen fed funds ending 2025 at 4.1%.
Fed Gov. Michelle Bowman voted against the decision, preferring a 25bp cut, in the first dissent since the Fed started hiking rates in 2022.
The first rate cut since the pandemic left the fed funds target range at 4.75-5%.
The Fed “judges that the risks to achieving its employment and inflation goals are roughly in balance," the FOMC said in its statement. “Job gains have slowed and the unemployment rate has moved up but remains low.”
Fed officials revised up their forecast for unemployment to 4.4% for this year and next, up from 4.0% and 4.2% respectively at the June SEP.
The U.S. labor market has been slowing but remains robust by many measures, with the unemployment rate still hovering at a respectable 4.2% and layoffs remaining low.
The growth outlook is also pretty resilient despite some hints of weakness. The Atlanta Fed has just revised its GDPNow tracker for the third quarter up to 3%, a sign that the economy remains healthy despite the central bank's renewed concerns about employment.
Inflation has been coming down gradually and officials have expressed growing confidence that consumer price growth is in fact headed back sustainably to the Fed's 2% target. Core PCE came in at 2.6% for July.
“Inflation has made further progress toward the committee’s 2% objective but remains somewhat elevated,” the FOMC statement said.