US | Fed starts big, but points to smaller rate cuts ahead

Summary

Fed’s quest to preserve the soft landing began today: it unequivocally confirmed that its focus has shifted to the labor market. It doesn’t look overly concerned about a hard landing, but rather signals its commitment “not to get behind” during the rate cut cycle.

Key points

• Key points:
• The Fed cut the policy rate by 50 bps in a split vote (11 to 1) on greater confidence in the disinflation process and a strong commitment to support the labor market.
• Powell tried hard to clear up that opting for a 50bp cut instead of a 25bp cut does not mean the Fed is “in a rush” to cut rates aggressively from now on.
• Most participants project the Fed will take down the policy rate to 4.25-4.50% by the end of this year and probably to 3.25-3.50% by the end of 2025.
• The Summary of Economic Projections showed the unemployment rate is now forecast to peak at 4.4% this year and next, and to slightly decline to 4.3% in 2026.
• We anticipate two 25bp rate cuts at the upcoming November and December meetings and six consecutive 25bp rate cuts next year.

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