Fed Wrap - Fed cuts and signals rates are near neutral

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 updates to the dot plot and summary of economic projections, and how the Fed is positioned to make policy decisions in 2026.

At the December meeting, the Federal Reserve cut rates by 25bp, lowering the upper band of their policy rate to 3.75%. There were three dissents with one voting in favor of a 50bp cut and two voting in favor of holding rates. The Fed statement provided minimal changes but noted that the unemployment rate has edged up. Additionally, they added language focused on the “extent and timing” of additional adjustments which might be perceived as a more forceful way of suggesting that the Fed may hold following three consecutive cuts.

It is worth noting that the Fed had limited access to data updates over the past couple of months due to the government shutdown so their willingness to slow policy adjustments allows them to have a clearer understanding of the US economy as the distortions from shutdown flow through the data releases.