Federal Reserve Decision Summary

• The Federal Reserve cut interest rates by 25 basis points.
• The number of projected rate cuts for next year has been reduced from 4 to 2.
• Additional cuts are expected: 2 in 2026 and 1 in 2027.
• The long-run federal funds rate expectation has increased to 3%.

September Dot Plot

December Dot Plot

Key Details

• Dissent: Cleveland Fed President Beth Hammock preferred to leave rates unchanged.
• Committee Views:
  • 10 members see 2 cuts next year
  • 5 members see 3 or more cuts
  • 3 members forecast 1 cut
  • 1 member suggests leaving rates unchanged through 2025 and 2026

Economic Forecasts

• Inflation: Both PCE headline and core inflation forecasts have been revised upward.
  • Headline inflation: 2.5% by end of next year (up from 2.1%)
  • Core inflation: 2.5% by end of next year (up from 2.2%)
• Unemployment: Expected to be 4.3% at the end of next year.
• GDP Growth:
  • 2024 end: 2.5% (up 0.5% from September forecast)
  • 2026: 2.1% (indicating a significant slowdown)

Technical Note

• The Fed lowered the offering rate for overnight reverse repurchase agreements by 30 basis points to 4.25%.

Key points from Chair Powell's press conference:

Powell Speech Summary

Probabilities Comps as of Dec 18