Fed cuts rates, Powell dampens expectations of deep further cuts

Rate cut of 25 bps, almost unanimous

The Fed today delivered the widely expected interest rate cut of 25 basis points, ending a nine-month period of unchanged key interest rates. The target range for the Fed Funds rate is now 4.00% - 4.25%. Only the new Fed governor, Stephen Miran, voted against the decision, arguing for a 50 basis point cut. Governors Waller and Bowman, who are often associated with the Trump camp and who had voted against the majority at the last meeting, voted with the majority today. Fed Chair Powell thus succeeded in achieving a near-consensus vote – it had been expected from the outset that Miran, who wants to return to the White House after his brief stint at the Fed, would advocate for a larger step. The meeting participants were apparently aware that a controversial vote with many dissenting voices would not help the Fed maintain its independence.

In the statement published after the meeting, the Fed noted that both the unemployment rate and inflation had risen slightly. Nevertheless, the risk assessment has shifted, with the labor market now being given greater weight. The Fed "judges that downside risks to employment have risen". This is the key change in the Fed's wording.

The new dot plot indicates only slightly more rate cuts

The Fed also published its governors' and regional presidents' updated projections today. For the end of 2025, central bankers expect a key interest rate of 3.6% (midpoint of the target range) on average, which is lower than in the July projection (3.9%). Although this points to two further interest rate cuts of 25 bp each in 2025, the dispersion of the “dots” is extremely high even for 2025. The projections range between 2.9% and 4.4%, even though there are only two meetings left this year. So we should not draw any overly strong conclusions here.

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