Jay Powell Dons His Santa Hat
Yesterday’s decision by the Federal Reserve to hold the short-term interest rate steady for the third consecutive meeting at a range of 5.25 to 5.5 percent came as no surprise. Indeed, financial markets had consistently in recent weeks put the odds of a continued pause at more than 99 percent.
What was unexpected was a shift in tone. This was evident in the so-called “dot plots”—the economic and interest rate projections made by the members of the FOMC, the Fed’s rate setting body. Notably, these latest projections expect rate cuts totaling 75 basis points next year and 100 basis points in 2025. The previous set of projections, released in September, anticipated a slower pace of cuts next year and a higher rate at the end of 2025. The “dot plots” were accompanied by slightly less hawkish language in the FOMC’s statement. All told, this suggests the tightening cycle is over.
Of course, the “dot plots” are just projections and the FOMC statement made no definitive policy statements. A resurgence or even a stubborn persistence in inflation would change the outlook dramatically. But for now, it appears as though financial conditions are on track to ease in 2024. This is welcome news in this holiday season for the economy as a whole and for financially strapped households.
December 14th, 2023 by gmcgurn@afsamail.org
