As had been fully expected, and discounted by money markets, Powell & Co. delivered a 25bp cut at the conclusion of the November FOMC meeting, lowering the target range for the fed funds rate to 4.50% to 4.75%.
Such a cut marks the second step in the journey back to a more neutral policy setting, albeit a more modest one than the ‘jumbo’ 50bp cut seen last time around, and comes as policymakers continue to normalise policy, in an attempt to stick the ‘soft landing’ which the economy currently appears on course for.
Accompanying the 25bp cut was a policy statement which was largely a ‘carbon copy’ of that delivered after the prior meeting, in September. Hence, the Committee noted that they will continue to follow a data-dependent approach, while also still characterising the risks to each side of the dual mandate as ‘roughly’ in balance.
On the whole, the decision does little to materially alter the policy outlook, though market participants will now look to Chair Powell’s press conference, at the bottom of the hour, for any potentially more explicit hints on the pace of further rate cuts.
My base case remains that the Committee will continue to deliver 25bp cuts at every meeting, until a neutral rate, around 3%, is reached next summer. Risks, though, to this path have now become more two-sided since the election.
Were the labour market to weaken unexpectedly, and unemployment rise north of the SEP median 4.4% expectation for this year, and next, the prospect of a larger 50bp cut would come back onto the table. On the other hand, President Trump’s likely reflationary agenda represents a hawkish risk, particularly if the imposition of tariffs reignites inflationary pressures.
It is, obviously, too early to say how significant this latter risk could prove, though in early-2025, the FOMC will likely need to take policy off its current ‘autopilot’ setting, and become considerably more nimble.
We also heard, from the Bank of England, who delivered a 25bp cut of their own. The MPC voted 8-1 in favour of such action, with only uber-hawkish external member Mann favouring holding rates steady. The MPC’s statement was also largely a ‘carbon copy’ of the last, repeating that policy will need to remain “restrictive for sufficiently long” in order to bear down on persistent price pressures within the economy.
The Bank’s latest forecasts, meanwhile, reflecting last week’s expansionary Budget, as well as a more dovish market-implied rate path at the time of forecast collation, the profile was revised notably higher, to the tune of around 0.5pp at its peak. Consequently, headline CPI is now seen at 2.2% in the final quarter of 2026, before falling to 1.8% in 2027.
With this forecast conditioned on the market-based rate path, the BoE are implicitly signalling to financial markets that too great a degree of policy easing is presently priced in.
