Market Anticipated Decision to Hold Rates
The announcement to stay put was widely anticipated by the markets, potentially marking the end of a cycle that has witnessed 11 rate hikes, propelling the fed funds rate to its highest level in over 22 years. However, there remains uncertainty regarding the committee’s stance on policy easing and how ambitious their approach might be.
Further Projections for Rate Cuts in 2025 and 2026
The committee’s “dot plot,” which illustrates individual members’ expectations, indicates the possibility of four additional rate cuts in 2025, equivalent to a full percentage point reduction. Furthermore, three more reductions in 2026 could potentially bring the fed funds rate down to a range of 2% to 2.25%, aligning with the long-run outlook. Nevertheless, there is significant dispersion in the estimates for the final two years.
Indication of Potential End to Rate Hikes
In a potential indication that rate hikes may be over, the committee’s statement mentioned that they would evaluate multiple factors for “any” future policy tightening, a term that had not previously been mentioned. Alongside the interest rate hikes, the Federal Reserve has been allowing up to $95 billion in monthly proceeds from maturing bonds to roll off its balance sheet without replacement. This process has continued, and there is no indication that the Fed is willing to curtail this aspect of policy tightening.
Inflation Update and Target
The post-meeting statement acknowledged that inflation has “eased over the past year,” although prices remain described as “elevated.” However, some measures suggest that the Fed is approaching its target of a 2% inflation rate. Calculations from Bank of America indicate that the Fed’s preferred inflation gauge could reach around a year-over-year rate of 3.1% in November, potentially meeting the central bank’s goal on a six-month annualized basis.