U.S. FOMC Meeting (November 6-7, 2024)

Fed slows the pace of rate cuts with a 25 bp move

• The Federal Reserve Open Market Committee (FOMC) cut the federal funds rate to the 4.50% to 4.75% range and announced it would continue its balance sheet runoff. 
  
• The Fed updated its language on inflation by removing the line that it has gained "greater confidence" on inflation. Now the statement simply focuses on how the Fed views inflation risks as "roughly in balance". 
  
• The announcement largely maintains the language around the state of the economy and the labor market by highlighting that "economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low".
  
• On the future path of policy, the statement repeated that "the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals".
  
• All of the members of the FOMC voted in favor of the decision.

Key Implications

• As widely expected, the Fed has slowed the pace of rate cuts following September's 50 bp move. Today's decision follows recent rhetoric from Fed members who have paid closer attention to the improvement in consumer spending momentum. There was no mention of U.S. election impacts, but our analysis shows that a broad increase in tariffs would lift inflation and force the Fed to slow the rate cutting cycle even further. That said, recent inflation data have been encouraging, with core PCE inflation cooling to 2.3% on a three-month basis. 
• Market expectations are still leaning towards another 25 bp cut in December (64% chance), which matches what the Fed was projecting in September. Beyond that, there is less certainty, with markets signaling that the Fed would move to a cut-pause-cut pace in 2025. We have already moved to this view, penciling in 25 bp cuts in December and January, before pausing in March. This suggests that the Fed will adopt a more patient approach as economic and political risks become increasingly elevated.     

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