US | Fed cuts rates by 25 bps, but signals a more hawkish pace going forward

With “the story of why inflation should be coming down [...] still intact,” the main reason behind today’s hawkish shift is likely the growing concern around the potential inflationary impact of Trump’s proposed trade, fiscal, and immigration policies.

Key points

• Key points:
• The Fed cut the policy rate by 25 bps to a 4.25-4.50%, but signaled that the rate-cut cycle will likely take longer than previously thought.
• The updated SEP points to a slower pace of monetary policy easing next year amid higher inflation uncertainty: “when the path is uncertain you go a little bit slower.”
• The 10bp increase in the 10-year Treasury yield (to 4.5%) following the meeting indicates that the market had not fully anticipated the Fed's more hawkish tone.
• A “new phase in the process” of easing means the Fed is likely to gear policy to a more hawkish path as it is now thinking about the effects of likely policy changes.
• We now think that the Fed will skip cutting rates in the first meeting of next year and cut the fed funds rate by 25 bps in March and June.

Authors

Geographies

Topics

Tags