5 key take home points from FOMC day – nailed it or failed it?

The Fed cut and signalled a pause, ICYMI:

• The Federal Reserve cuts rates by 25 basis points, as expected. Dollar higher on dots
• FOMC full statement for December 2024 meeting
• FOMC December 2024 dot plot and central tendencies of economic forecasts
• Powell opening statement: Inflation is much closer to 2% goal
• Powell Q&A: Today was a ‘closer call’ but we decided it was the right call

There are plenty of hot takes around the place, I’ve summarised here. What do ForexLive traders think, let me know in the comments your additions and subtractions from these 5:

• Fed Rate Cut and Policy Outlook:The Federal Reserve implemented the anticipated quarter-point rate cut, totaling 100 basis points in reductions for the year. This marks the end of the Fed’s policy adjustments, with Chair Jerome Powell indicating a more cautious approach moving forward. Notably, Cleveland Fed President Beth Hammack, a newcomer to the FOMC, dissented in favor of maintaining current rates. This dissent, the first from a regional president since 2022, highlights growing divisions within the committee as inflation proves harder to curb than expected.

• Future Policy Projections:The Fed surprised markets with its updated policy projections. Contrary to expectations for a more aggressive easing in 2025, officials now foresee only two rate cuts, compared to the three many analysts predicted. Additionally, the timeline for inflation to return to the 2% target has been pushed back to 2027, a year later than previously estimated.

• Press Conference Insights:Powell stated that future rate cuts will depend on continued progress in reducing inflation but refrained from providing a detailed roadmap for 2025, emphasizing the need to adapt based on economic developments.

• Impact of Incoming Administration and Neutral Rate Adjustment:The upcoming Trump administration has shifted expectations for the economy in the coming year. Powell noted that some Fed officials are beginning to factor potential new policies into their forecasts, though the specific policies and their effects remain uncertain. Additionally, the Fed revised its estimate of the neutral interest rate upward, suggesting rates may stay higher than previously thought.

• Market Reaction:Markets reacted negatively to the Fed’s decisions. The S&P 500 fell 2% by mid-afternoon in New York, marking its worst performance on a Fed decision day since January. Two-year Treasury yields rose by 11 basis points to 4.35%, and the dollar strengthened.

This article was written by Eamonn Sheridan at www.forexlive.com.