TechFlow, Dec 11 — According to Jinshi Data, the Federal Reserve cut the benchmark interest rate by 25 basis points to 3.50%-3.75%, marking the third consecutive meeting with a rate cut, in line with market expectations. The Fed has cumulatively cut rates by 75 basis points this year.
Key takeaways from the FOMC statement and Powell's press conference:
FOMC Statement:
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Summary: Interest rates were lowered by 25 basis points to 3.50%-3.75%, the third straight meeting with a rate cut. Bowman supported a 50 basis point cut, while Goolsbee and Schmidt favored holding rates steady.
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Rate outlook: Will consider the magnitude and timing of further adjustments to rates. The median projection in the dot plot remains unchanged from September, indicating one rate cut expected each in the next two years.
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Inflation outlook: Inflation has risen somewhat compared to earlier in the year and remains relatively high, consistent with prior statements. The Summary of Economic Projections (SEP) shows a downward revision to next year’s inflation forecast.
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Economic outlook: Economic activity has been expanding at a moderate pace, and uncertainty about the economic outlook remains high, consistent with previous wording. GDP growth forecasts for the next three years have all been raised.
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Labor market: Removed the description of unemployment as "low," noting that downside risks in employment have increased in recent months. The forecast for next year's unemployment rate remains unchanged at 4.4%.
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Reserve asset purchases: Will begin purchasing Treasury bills on December 12, buying $40 billion in T-bills over the next 30 days. Eliminated operational limits on the standing overnight repo facility.
Powell Press Conference:
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Rate outlook: Can wait and see how the economy evolves. Currently at the upper end of the neutral range. No one currently views rate hikes as the baseline expectation. Longer-term rates may rise due to expectations of faster economic growth.
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Inflation outlook: Inflation risks are skewed to the upside. Peak inflation could be slightly higher or lower than current levels by a few tenths of a percentage point. The current inflation overshoot is primarily driven by tariffs. If tariffs are removed, inflation would settle at the lower end of the 2% range. The impact of tariffs is likely to be transitory.
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Economic outlook: Does not believe the economy is overheating. The base case for next year remains solid growth. Can afford to wait and observe developments.
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Labor market outlook: Labor market faces downside risks. Recent job growth has been overstated by about 60,000 jobs. The unemployment rate may rise another 0.1%-0.2% at most.
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Asset purchases: Purchases of short-term Treasury bills are solely for reserve management purposes. Purchase volumes may remain elevated over the coming months before gradually declining.
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Latest expectations: As of publication time, futures markets expect the Fed to cut rates by a cumulative 55 basis points next year, slightly up from pre-meeting levels. Probability of a 25 basis point cut in January stands at 24.4%.
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Market reaction: From the release of the Fed statement through Powell’s remarks, gold and silver initially rose, then dipped before climbing again, with silver hitting a new all-time high. U.S. Treasury yields declined by about 4 basis points, the dollar weakened broadly, non-U.S. currencies strengthened, and U.S. equities trended upward, with the Dow Jones rising over 1%. Trump criticized Powell after the meeting, saying the rate cut should have been larger.
