Andrew Pyle
December 18, 2024
Might be the last for a while.
Today, the Federal Reserve didn’t disappoint, by lowering its official rate to a range of 4.25% to 4.5%, marking a cumulative decline in the target rate of one full percent from the peak of 5.5% in the summer. One official dissented, voting for no change in rates.
In the accompanying statement, Fed officials again highlighted that economic activity has expanded at a solid pace and the unemployment rate remains low. Beyond this last meeting of 2024, the Fed says that it will carefully assess income data, the evolving outlook and the balance of risks. Considering that Trump steps into power ten days before the next FOMC meeting, it is understandable that the Fed is going to shift to a more cautious stance and the street is now shifting to a view that there won’t be a cut next month.
In terms of the outlook, the Fed’s internal predictions show a consensus for two more rate cuts in 2025, compared to four cuts at the last FOMC meeting. Given the stickiness in inflation in recent months and the fact that most economists expect that the US economy is going to be stimulated by fiscal policy, there has been pushback by analysts on why the Fed would even think that additional cuts are needed.
As we will discuss in this week’s conference call and newsletter, a more cautious Fed will potentially choke off the bond market recovery. This afternoon, the 2yr treasury yield had already pushed above 4.30% and the 10yr is less than 3 basis points from 4.5%. US equity indices were fading into the Fed verdict, but turned much more negative on the statement and Chair Powell’s Q&A remarks.
On behalf of the Pyle Wealth Advisory team, have a wonderful rest of the week.
Andrew Pyle
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