US | Fed set to slow the pace of rate cuts to 25 bps

Summary

FOMC members will likely continue to signal that their plan continues to be a gradual normalization of the fed funds rate. They are likely to agree to continue normalizing the monetary stance with more cautious 25bp rate cuts.

Key points

• Key points:
• A positive outlook underpinned by the strength of consumer spending and recent upward revisions to GDP and GDI suggest that aggressive rate cuts are not warranted.
• Chances of a second 50bp rate cut vanished soon after the blockbuster jobs report for September; the Fed is more likely to cut rates by 25 bps.
• Economic activity and employment strength coupled with more disinflation in the pipeline suggest that the path to a soft landing is not as narrow as initially thought.
• The Fed will ignore this week’s election outcome, but greater inflationary challenges in the face of a Trump victory may result in fewer rate cuts next year.
• FOMC members will likely “view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts.”

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