Fed Wrap – Fed Cuts 25bp but Delivers Hawkish Forecast

Ryan Weldon, from IFM’s Debt Investments team in New York, features in our Fed Wrap market update videos discussing central bank themes in debt markets, with a particular focus on the US Federal Reserve (Fed).

In this edition, Ryan discusses the outcomes of the December Fed meeting, the key points from the press conference and what to watch ahead of the next meeting. 

At the December meeting, the Federal Reserve cut rates by 25bp, lowering the upper band of their policy rate to 4.5% with one dissenting vote in favor of holding.  There was one notable change to the statement in which “extent of and timing” were added to the consideration of additional cuts suggesting that the Fed will be taking a slower approach to cuts in 2025.  The updated dot plot confirmed a similar sentiment with median Fed Funds expectations for 2025 through 2027 all being revised upward.  Additionally, the summary of economic projections showed the Fed increased its PCE forecast for 2025 from 2.1% to 2.5% suggesting they expect some near-term slowdown in inflation progress.   Overall, the distribution of forecasts in the dot plot and summary of economic projections widened relative to the last release indicating that the Fed sees higher risk to achieving their goals in 2025 given policy and subsequent inflation uncertainty.