US | Fed pivots instead of pushing back at the recent shift in market expectations

Summary

Not a single Fed official now forecasts that the fed funds rate needs to rise further from its current level in the updated Summary of Economic Projections (SEP) and dot plot.

Key points

• Key points:
• As widely expected, the Fed announced its unanimous decision to hold the fed funds rate steady at a 22-year-high 5.25-5.50% target range.
• The statement wording had some dovish tweaks: the Fed’s assessment of growth was downgraded and it recognized that “inflation has eased”.
• The median forecasts for the fed funds rate at both end-2024 and end-2025 were revised down by 50 bps to 4.6% and 25 bps to 3.6%, respectively.
• The Treasury yield curve strongly shifted down: the 2-year yield fell by c. 30 bps to around 4.5%, while the 10-year yield by almost 100 bps from its 5.0% October peak.
• We now have a downward bias to our expectation of three rate cuts next year. A rate cut cycle could start earlier, as soon as in March.

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