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Informist, Thursday, Dec. 19, 2024

 

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--US FOMC cuts federal funds rate target range by 25 bps to 4.25-4.50% 
--Median of US Fed officials' views shows 50 bps rate cuts 2025 
--US FOMC:Recent data shows econ activity continued to expand at solid pace 
--US FOMC: Labour mkt conditions eased, unemployment rate up but remains low 
--US FOMC: Inflation has made progress towards 2% aim but remains elevated 
--US FOMC: Risks to achieving inflation, employment goals roughly in balance 
--US FOMC: Strongly committed to maximum employment, 2% inflation aims 
 

 

MUMBAI – The US Federal Open Market Committee voted with an 11-1 majority to cut the Fed funds target range by 25 basis points to 4.25-4.50%, moderating its benchmark rate by a total of 100 bps in the last three meetings of 2025. The Summary of Economic Projections, released along with the FOMC statement, showed the median Federal Reserve official expects another 50 bps of rate cuts in 2025, against the previous guidance of 100 bps.

 

"The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance," it said in its statement detailing the outcome of the meeting. "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

 

Cleveland Fed President Beth Hammack voted to maintain the policy rate at 4.25-4.50%, the only outlier in the outcome that otherwise met market expectations. At 0000 IST, the CME FedWatch tool showed near unanimity in expectations of a 25-bps rate cut. At 0050 IST, the yield on the 10-year US Treasury yield was 4.40%, marginally lower than before the policy outcome.

 

Recent data show that economic activity in the US has expanded at a solid pace, and inflation has made further progress towards the aim, while being somewhat elevated, the FOMC said. The panel said it was strongly committed to bringing inflation down to the 2% target, while achieving maximum employment. The commentary was entirely identical to the November statement, when the rate-setting panel had also cut the policy rate by 25 bps.

 

"In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook," the statement said.

 

In the Summary of Economic Projections, one of the 17 Fed officials guided for interest rates to be steady in a year's time, while 10 saw 50 bps of rate cuts. There were only two members at or below the target range of 3.25-3.50% in December 2025, which was the median in the last set of projections.

 

The pace of disinflation in the world's largest economy has slowed in recent months, with core personal consumption expenditure inflation rising to 2.8% in October from 2.6% in July, still above the FOMC's 2% aim over the long term. The Fed's preferred inflation gauge is expected to remain above 2% even by the end of 2026, with upward revisions of 20-30 bps from prior projections. 

 

Meanwhile, GDP growth is seen much stronger, with an upward revision of 50 bps in the median estimate to 2.5% for 2024. Estimates for the following years were little changed. In the labour market, the unemployment rate median projection has been revised down to 4.2% from 4.4% previously for this month, and is seen settling at 4.3% at the end of the next two calendar years. 

 

The committee said it would continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as described in its previously announced plans. The Fed has begun trimming its balance sheet by $60 billion every month in Treasury and mortgage-backed securities starting Jun. 1. This was after a monthly drawdown of $95 bln for the previous two years.  End

 

US$1 = INR 84.95

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

Edited by Avishek Dutta

 

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