FOMC Lowers Rates at The November Meeting

At the November FOMC meeting, committee members reviewed new economic data and found that risks to achieving its dual mandate were roughly in balance. Given the balance of risk, they voted to reduce the Fed Funds Rate for the second consecutive meeting.

The FOMC Reduces Interest Rates

The committee voted to reduce the Fed Funds Rate by 0.25 percentage points to a target range of 4.50 – 4.75%. This move followed a 0.5 percentage point cut at the previous meeting in September and brought the cumulative rate reduction in 2024 to 0.75 percentage points.

The FOMC’s decision did not come as a surprise to those that have been following the markets. In fact, 98% of analysts correctly predicted the meeting’s outcome before it began.

Data Supporting the FOMC’s Interest Rate Decision

The FOMC has a dual mandate to support maximum employment and price stability, and data related to each of these goals influenced their most recent decision. The overall economic situation also impacts these goals and was mentioned as a contributing factor.

Inflation Has Eased

The Bureau of Economic Analysis [BEA] recently released the September Personal Income and Outlays Report. A piece of this report is the PCE Inflation Rate – the Fed’s preferred gauge of inflation. This rate eased to 2.1%, which is very close to the Fed’s target of 2.0%. However, Core PCE Inflation – which excludes the volatile Food and Energy sectors – remained elevated at 2.7%.

In a press conference following the interest rate announcement, Federal Reserve Chairman Jerome Powell addressed the topic of inflation. He focused on the progress that has been made in bringing inflation down from its peak of about 7%. Chair Powell also noted that inflation expectations remain well anchored, which is seen as a positive sign for the economy.

The Labor Market Has Weakened

Employment is another key factor that influences the FOMC’s interest rate decisions. The Bureau of Labor Statistics recently announced that the unemployment rate held steady at 4.1% in October. This rate is expected to climb to 4.4% by the end of the year, according to the FOMC’s September projections.

Chair Powell noted that strikes and severe weather dampened the most recent employment report and weighed on job gains. He also described the current state of the labor market as solid, though somewhat weaker than prior to the pandemic.

Economic Growth Remains Stable

The BEA is also responsible for tracking Gross Domestic Product and recently released an advance estimate for the third quarter.  It showed that Real GDP rose at an annual rate of 2.8% – a 0.2 percentage point deceleration from the second quarter. Despite the quarterly deceleration, GDP remains well above the FOMC’s expected 2.0% year-end rate, as of their September projections.

Overall, Chair Powell noted strength in the economy as measured by these factors as well as improving supply conditions and resilient consumer spending. Taken together, the data paints an optimistic picture for the Fed’s soft landing.

Projections For Monetary Policy

The most recent projections from the FOMC showed an end-of-year Fed Funds Rate of 4.4% which would signal one additional rate cut at the final meeting of the year. For 2025, the FOMC’s projections signal four more rate cuts which would bring the Fed Funds Rate to 3.4%.

Markets currently confirm the FOMC’s projections for the current year. About 70% of analysts predict that the Fed will lower rates at December’s meeting and estimates show the rate cuts continuing throughout 2025. However, analysts predict a slightly higher Fed Funds Rate at the end of 2025 than the Fed’s most recent projections.

The Fed will release updated projections for the economy and interest rates at the December meeting. Until that time, they will continue to monitor incoming data that will influence their interest rate decisions. Chair Powell has repeatedly stated that the Fed is not on a predetermined course but will continue to make decisions meeting by meeting based on the trajectory of the economy.

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