Fed’s Monetary Policy Statement 

With inflation figures moving closer to the target and a noticeable slowdown in job growth, the Federal Reserve (Fed) decided to lower the benchmark interest rate by 50 basis points (bps). This significant move had not been seen since the emergency rate cuts during the COVID-19 pandemic in 2020. Outside of those emergency situations, the last time the Fed made a cut of this size was in 2008 during the global financial crisis. The market had expected this decision, though there was some debate over whether the cut would be 25 or 50 bps. As a result of this change, the federal funds rate range is now 4.75–5.0%. 

The Fed’s statement noted that recent indicators show the economy continues to grow at a steady pace. Job growth has slowed, and the unemployment rate has inched up slightly but remains low overall. Inflation is progressing toward the Fed’s 2% target but remains somewhat elevated. In the future, when considering rate adjustments, the Fed will carefully assess incoming economic data, evolving conditions, and the overall balance of risks. 

Additionally, the Fed updated its economic forecasts, making some adjustments for the remainder of this year and next year. They now expect the federal funds rate to average around 4.4% by the end of 2024, down from the 5.1% projected in June, suggesting another potential 50 bps cut. By 2025, they project the rate to be around 3.4%, lower than the previously estimated 4.1%. Economic growth expectations remain steady, near 2% for this year and 2025. However, the unemployment rate forecast has been revised up to 4.4% (currently at 4.2%) from the 4% estimated in June. For 2025, the unemployment rate is expected to stay at this level. 

Finally, the core inflation forecast (excluding volatile items like food and energy), measured by the Core PCE, is expected to decline to 2.6%, down from the previous estimate of 2.8%, and to reach 2.2% by the end of next year. 

Update of FED Indicators (September vs. June)

Source: Federal Reserve