This week’s FOMC meeting went as expected with the committee cutting rates for the third time this year, putting the Fed Funds Rate into a 3.50-3.75% target range; a level last seen in 2022 prior to the fastest rate hiking cycle in Fed history. The decision passed 9-3, marking the most dissents in six years. Prior dissenters, Jeff Schmid and Stephen Miran, stood firm on their previous positions to hold rates steady and preferring a 50-basis cut, respectively. The newest dissent was Chicago Fed President Austan Goolsbee, who sided with Schmid to leave rates in place. 

Jerome Powell’s press conference had a lot of the same language we’ve heard at previous meetings, including the challenge of simultaneously addressing their dual mandates. Powell announced the return of de facto quantitative easing in the form of “reserve maintenance purchases,” as well as de facto temporary open market operations (TOMO). The Fed is expected to resume short-term Treasury purchases in the amount of $40 billion per month. Although Powell assured us that he expects these changes to be temporary. To be sure, Powell announced the end of quantitative tightening effective December 1. Treasury purchases will begin today, marking a 12-day break from FOMC market interference. Powell was explicit in advising reporters that these moves were entirely separate from monetary policy and necessary to ensure bank reserves remain at “ample” levels. 

The updated Summary of Economic Projections (SEP) saw an increase in expected GDP growth to 1.7% in 2025 and 2.3% in 2026 signaling optimism for an economic rebound. Unemployment is expected to rise to 4.5% before year-end and ease to 4.4% next year. CORE PCE is expected to end the year at 2.5%, which is well-below its current level of 3%. The updated dot plot showed a better near-term consensus in rate expectations among FOMC members for 2025. For 2027, the range of the expected Fed Funds rate is between 2.75% and 4.00%. This indicates numerous silent dissents as policymakers remain divided about the pace and direction of future rate moves. As of this writing, interest rate futures are projecting one cut at the March meeting, with one more following in September for a total of two expected cuts next year. 

Equity markets reacted quickly during Powell’s press conference with equity indices brushing up against record highs again. Powell’s tone was apparently not as hawkish as many were expecting, and with the resumption of de facto QE and TOMO, he’s effectively assured markets the Fed Put remains intact.

KEY INDICATORS THIS WEEK

Labor market – October’s JOLTS report showed the highest number of job openings in five months. Jobless claims rose to their highest level since 2020 last week.
Next Week – November nonfarm payrolls, retail sales and November CPI.