FOMC Lowers Funds Rate Target by 50 Basis Points
by:Tom Moeller
|in:Economy in Brief
Summary
- Funds rate target range was lowered to 4.75% to 5.0% after being held steady at 5.25% to 5.5% since August 2023.
- Fed maintains focus on inflation reduction.
- Moderation of labor market strength & progress toward 2% inflation goal again is noted.
At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was reduced by 50 basis points with all but one member voting in favor of a reduction to this degree. A 25 basis point reduction had been expected in the Action Economics Forecast Survey.
The statement following the meeting began much as it had at prior meetings. “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated.”
It went on to state, “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.
At today’s meeting the Fed released new economic projections.
Real GDP growth in 2024 was reduced to 2.0% from 2.1% and was unchanged at 2.0% through 2027. The unemployment rate at yearend 2024 was raised to 4.4% from 4.0%, was raised to 4.4% from 4.2% in 2025 and was raised to 4.3% from 4.1% in 2026.
PCE inflation in 2024 was reduced to 2.3% from 2.6%, was reduced to 2.1% from 2.3% in 2025, then held at 2.0% thereafter. Core PCE price inflation in 2024 was reduced to 2.6% from 2.8%, was reduced to 2.2% from 2.3% in 2025, then held at 2.0% thereafter. (All growth rates are Q4/Q4.)
The “appropriate” funds rate projection in 2024 was reduced to 4.4% from 5.1%, was reduced to 3.4% from 4.1% in 2025 and was lowered to 2.9% from 3.1% in 2026. (Projections at year-end.)
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
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