On Wednesday, the Federal Reserve lowered key interest rates by 50 basis points.
The Committee noted, “Recent indicators show that economic activity continues to grow steadily. Although job gains have slowed and the unemployment rate has risen slightly, it remains low. Inflation is progressing toward the Committee’s 2 percent target, although it is still somewhat elevated.” Given this progress on inflation and the balance of risks, the Committee has adjusted the target range for the federal funds rate down to 4.75 to 5 percent.
The Committee is focused on achieving maximum employment and a long-term inflation rate of 2 percent. It is increasingly confident that inflation is moving sustainably toward this goal and believes the risks to employment and inflation targets are roughly balanced. However, the economic outlook remains uncertain, and the Committee is attentive to potential risks on both sides of its dual mandate.
The Committee’s median GDP projection remains steady at 2% over the next three years. The median unemployment rate is projected at 4.4% for 2024 and 2025, decreasing to 4.3% in 2026. The latest projections are slightly higher than the Committee’s June median projections of 4.0% by year-end 2024, 4.4% in 2025, and 4.3% for 4.1%. For Core PCE inflation, the median forecast is 2.6% for 2024, sliding to 2.2% in 2025 and 2.0% in 2026. Projections for the Federal funds rate have been revised to 4.4% for 2024 (down from 5.1%), 3.4% for 2025 (down from 4.1%), and 2.9% for 2026 (down from 3.1%).
As it considers future adjustments to the target range, the Committee will continue to assess incoming data, the evolving economic landscape, and the balance of risks. It will also persist in reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, remaining committed to maximizing employment and returning inflation to its 2 percent target.
In shaping its monetary policy stance, the Committee will closely monitor how new information affects the economic outlook. It stands ready to adjust its approach as necessary should any risks emerge that could impede achieving its goals. The Committee’s evaluations will encompass a wide range of factors, including labor market conditions, inflation pressures, expectations, and financial and international developments.
https://www.federalreserve.gov/monetarypolicy/files/monetary20240918a1.pdf
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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