Informist, Thursday, Sep 19, 2024

--US FOMC cuts federal funds rate target range by 50 bps to 4.75-5.00%

--US FOMC: Data shows econ activity continued to expand at solid pace

--US FOMC: Job gains have slowed, unemployment rate up but remains low

--US FOMC: Have more confidence of inflation's sustained move to 2% aim
--US FOMC:Risks to achieving employment, jobs goals roughly in balance
--US FOMC: Inflation progressing towards 2% aim but remains elevated
--US FOMC: Attentive to risks on both sides of inflation-jobs mandate
--US FOMC: Strongly committed to maximum employment, 2% inflation aims

--Median of US Fed officials' views shows 50 bps more rate cuts 2024

MUMBAI/NEW DELHI – The US Federal Open Market Committee late on Wednesday cut the federal funds target range by 50 basis points to 4.75-5.00% at its September meeting, after 14 months of keeping it at an over two-decade high. The moderation in interest rates has been long awaited and comes on the back of easing inflation and a weaker labour market.

"The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the US Federal Reserve's policy release said. "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

The FOMC had raised the federal funds target range by 525 bps between March 2022 and July 2023. During that period, CPI inflation had hit multi-decade highs, while the US economy was growing at a robust pace.

Recent data show job gains have moderated in recent months, a fact the FOMC acknowledged in its statement, even as it said the unemployment rate remained low. The latest reading showed the unemployment rate rose to 4.2% in August from a bottom of 3.4% in May 2023. At the same time, core personal consumption expenditure inflation – the US Federal Reserve's preferred inflation gauge – fell to 2.6% on year in July from a peak of over 5.5% in early 2022.

Just like traders' expectations, the rate cut was not unanimous. Eleven of the 12 members voted for the 50-bps rate cut, while Michelle Bowman voted for a more modest 25-bp cut in interest rates.

At 2300 IST, Fed funds futures had priced in a 63% chance of a 50-bps rate cut ahead of the rate decision, according to the CME FedWatch tool. The expectation of at least a 25-bps rate cut was unanimous, heading into the meeting. At 0017 IST, the yield on the 10-year US Treasury yield was 3.67%, slightly lower than its level before the policy outcome. It had fallen to a low of 3.64%.

Recent data show that economic activity in the US has expanded at a solid pace, while inflation has made further progress to 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.

Earlier, analysts had been projecting that the US FOMC would cut rates before the end of 2023, but the anticipated slowdown in the economy is yet to materialise in a significant way. It was due to the progress of inflation and the balance of risks to both sides of its mandate that the committee voted to cut rates now, the statement said.

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 2024. There are two more FOMC meetings left in the year – in November and December. The 4.25-4.50% projection was revised down from the 5.00-5.25% median at the June policy review. Two officials expect the benchmark rate to remain at the current one, while only one expects it to be below the median reading.

At the end of 2025, the median projection showed the Fed funds target range at 3.25-3.50%, 75 bps lower than their projection in June. This implies 200 bps of rate cuts from the peak.

In the US Fed officials' median projection, personal consumption expenditure inflation is pegged at 2.3% on year in Oct-Dec, down 30 bps from the June forecast. Similarly, the core personal consumption expenditure inflation view has been revised 20 bps lower to 2.6% on year in Oct-Dec, suggesting no further fall in price pressures from August. For 2025, core personal consumption expenditure has been revised lower by 10 bps to 2.2% in the final quarter of the calendar year. Projections show that it is only by 2026 that policymakers expect to achieve the inflation target of 2%.

The summary also revised the median projection for real GDP lower by 10 bps for Oct-Dec to 2.0%. US Fed officials expect the world's largest economy to maintain that growth rate in 2025 and 2026 as well. The rate-setting panel also said it would be prepared to adjust the stance of monetary policy as appropriate, if there are risks that could impede the attainment of its goals.

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 bln 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 = 83.75 rupees

Reported by Aaryan Khanna and Kabir Sharma

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.