FOMC Statement: November 2024

The Federal Open Market Committee (FOMC) voted to reduce the federal funds rate target range by 25 basis points (bps) to 4.50% – 4.75%. There were no dissents.

Changes to the FOMC Statement:

• The economic assessment was little changed. Labor market conditions have eased, the unemployment rate has risen but remains low and inflation has made progress but remains somewhat elevated.
  
• The statement removed a comment about having “greater confidence” that inflation will move to 2% and reaffirmed that the risks to their employment and inflation goals are roughly in balance.
  

Key Quotes from Chair’s Press Conference:

• What should we expect at the December meeting and going forward?
  • We're going to wait to see how things are in December. We're on a path toward a more neutral stance. That has not changed at all since September. And you know, we're just going to have to see where the data lead.
• How will the Federal Reserve (Fed) balance the risks between inflation and unemployment?
  • If the economy remains strong and inflation is not sustainably moving toward 2%, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can move more quickly.
• Will the election impact the Fed’s decisions?
  • Let me say in the near term the election will have no effects on our policy decisions…we don't know what the timing and substance of any policy changes will be. We therefore don't know what the effects on the economy would be. Specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don't guess, we don't speculate, and we don't assume.
• What is the meaning of the statement changes?
  • The test of gaining further confidence was a -- was our test for the first rate cut. And so we met that test in September and therefore, we take that test…The point is, we have gained confidence that we're on a sustainable path down to 2 %...It's not meant to send a signal.
• What is the current backdrop of the labor market and inflation?
  • Overall, a broad set of indicators suggests that conditions in the labor market are now less tight than just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures.
  • Inflation has eased significantly over the past two years. Non-housing services and goods, which together make up 80% of the core PCE index are back to the levels they were at the last time we had sustained 2% inflation…what's not is housing services. Housing services is higher. What's going on there is, you know, market rents, newly signed leases are experiencing very low inflation…so that's just a catch-up problem, it's not really reflecting current inflationary pressures, it's past inflationary pressures.

Our View:

• Today marks another step in the Fed’s easing cycle. Even after cutting a total of 75bps at the last two meetings, the Fed still judges the current policy stance as restrictive. With inflation near its target, wages slowing, and a moderate pace of payrolls growth, we expect the Fed to continue to normalize the policy rate with another 25bps rate cut in December, which will get the Fed closer to a neutral policy stance.
• In the short term, we would expect the 10-year US Treasury (UST) yield to trade in a wide range of 4 – 5% given the uncertainty around the timing and magnitude of future fiscal policy. The sell-off in yields should be somewhat limited given we do believe the Fed will continue to ease policy and remain data dependent. Currently, we view the labor market and inflation to be on a slowing path which, in the absence of the next administration’s new fiscal trajectory, would be consistent with a 10-year UST yield closer to 3.5 – 4%.

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Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.