FOMC Update
December 18, 2024
As expected, the Fed lowered the benchmark rate by 25bp to a target range of 4.25%-4.50%, making the third rate cut in over four years. The Fed’s updated economic projections now show a 50bp rate cut in 2025 to 3.9% (from 3.4% in September). Additionally, the median forecast for PCE inflation increased to 2.5% (from 2.1%) and core PCE inflation forecast rose to 2.8% (from 2.6%). The Fed also lowered the Overnight Reverse-Repo Rate to 4.25% from 4.55%. Rates and Market:
- Fed Funds Target: 4.25%-4.50%
- Market Reaction: The release was viewed as hawkish. The S&P 500, UST 2s, and UST 10s were mostly unchanged. Currently, the market is pricing a 97% likelihood that the fed funds target at the January 29, 2025 meeting will remain the same.
The FOMC announced the following actions and analysis:
- FOMC votes (11-1) to lower benchmark rate, Cleveland Fed President Hammack dissented
- The unemployment rate has remained low and inflation remains elevated, however, the Fed will continue to be data dependent in deciding future moves.
- The Fed will reduce the rate it pays lenders using the overnight reverse repurchase facility by 30bp
- The Fed cut the Treasury Runoff Cap to $25billion from $60billion.