Next week, the Fed is widely expected to end the longest hold after a hiking cycle in its
history (Exhibit 1).
We look for the Fed to cut rates by 25bp, which should kick off a
series of 25bp cuts over the next five meetings. Markets still perceive a meaningful risk
of a 50bp cut next week, but this week’s data leave us comfortable with our 25bp call.
The main message from the meeting should be one of cautious optimism despite
greater concerns over downside risks.
emphasis added
Since the last projections were released, economic growth has been above expectations, the unemployment rate is slightly above expectations, and inflation lower than expected (although there are some “base effects” that might push PCE inflation up a little later this year).
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | |
| June 2024 | 1.9 to 2.3 | 1.8 to 2.2 | 1.8 to 2.1 | |
| Mar 2024 | 2.0 to 2.4 | 1.9 to 2.3 | 1.8 to 2.1 | |
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 4.2% in August. This is at the high end of the June projections.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | |
| June 2024 | 3.9 to 4.2 | 3.9 to 4.3 | 3.9 to 4.3 | |
| Mar 2024 | 3.9 to 4.1 | 3.9 to 4.2 | 3.9 to 4.3 | |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of July 2024, PCE inflation increased 2.5 percent year-over-year (YoY). This is at the low end of the June projections. Current analyst estimates are that PCE inflation will fall to 2.3% YoY in August.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | |
| June 2024 | 2.5 to 2.9 | 2.2 to 2.4 | 2.0 to 2.1 | |
| Mar 2024 | 2.3 to 2.7 | 2.1 to 2.2 | 2.0 to 2.1 | |
PCE core inflation increased 2.6 percent YoY in July. This is lower than the June FOMC projections for Q4, although analysts expect core PCE inflation to tick up slightly in August.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | |
| June 2024 | 2.8 to 3.0 | 2.3 to 2.4 | 2.0 to 2.1 | |
| Mar 2024 | 2.5 to 2.8 | 2.1 to 2.3 | 2.0 to 2.1 | |