SUMMARY
- As widely expected, the Federal Reserve lowered interest rates by 0.25% last week, bringing rates to 4.00% – 4.25%. Economic projections show that the Fed expects another two 0.25% rate cuts at each of the remaining FOMC meetings for the year. Fed Chair Jerome Powell cited slowing economic growth, driven by weak consumer spending, as well as the cooling labor market, as key reasons for the rate cut.
- However, the Fed’s dot plot (which shows where each of the FOMC policymaker participants thinks the Federal funds rate should be at the end of each of the next few years, plus the ‘long run’) shows a divergence in consensus: one committee member even expected a rate hike before year-end, while another expects the equivalent of five 0.25% cuts across two meetings.
- With economic growth expected to have risen by 3.3% on an annualized quarterly rate in the second quarter (and forecasts showing a similar number for third quarter growth) and inflation still above 2% (the August print saw headline inflation rising to 2.9% year-over-year), Fed rate cuts are likely to support nominal economic growth, while keeping inflation elevated.
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