at Calculated Risk on 12/15/2024 10:22:00 AM
Most analysts expect the FOMC will cut the federal funds rate at the meeting this week by 25bp lowering the target range to 4 1/4 to 4 1/2 percent. However, most market participants now expect the FOMC to pause in January and are split on a rate cut at the March meeting.
We expect the Fed to cut rates by 25bp at its December meeting. Powell is likely to point to a slower pace of cuts thereafter, including a break in Janin his presser. The dot plot should show three cuts in 2025 and a higher neutral rate. Consistent with this, we think the macro forecasts will indicate slightly stronger inflation next year, and higher longer run growth. Policymakers won’t account for the Trump agenda in their base case, but the balance of risks should give a sense of their assessment of potential policy changes.
emphasis added
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| September 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 4.2% in November (and 4.1%). This is below the low end of the September projections for Q4.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| September 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 October 2024, PCE inflation increased 2.3 percent year-over-year (YoY). This is in the middle of the September projection range.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| September 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 2.8 percent YoY in October. This was slightly above 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 |
| September 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 | — |