Fed- A Post-Mortem of Yesterday's Policy Meeting

The Federal Reserve cut interest rates by 25 basis points. In substantiating the cut, with more to come, policymakers highlighted that “downside risks to employment have risen” and didn’t mention upside risks on inflation, writes Peter Boockvar, editor of The Boock Report.

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There was also some softer labor growth/persistent inflation type acknowledgement language in the first paragraph of the FOMC statement when they said: “Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.”

This compares with the late July wording that said: “The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.” Not surprisingly, Stephen Miran with his very first vote wanted a 50-basis point cut. Waller and Bowman, who wanted a 25-bp cut in July, voted with the majority.

With the 2025 dot plot, the median fed funds rate shifted down to 3.6% from 3.9%, thus adding one more cut this year to a total of three. But the breakdown is worth noting.

Nine have two more cuts to come this year – in late October and another in December. One believes that the fed funds rate should be below 3% – and that is, of course, Miran (not specifically stated, but obvious). Nine believe that there should be zero-to-one cut in the coming two meetings, with one of those not even wanting a cut yesterday.

There wasn’t much change elsewhere, as their unemployment projection held at 4.5%. So did their core PCE forecast at 3.1%. They edged their GDP estimate up to 1.6% from 1.4%.

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Finally, while 2026 is a ways away...and we have no idea who will be Fed Chair...the median dot for the year-end '26 fed funds rate is 3.4%. That compares to the 2.9% that the fed funds futures market is currently pricing in.

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