Instant Reaction: The Fed Decides
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This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. The most divided Fed since before the pandemic voted to lower the benchmark rate by 25 basis points as investors expected. But there were three dissents for the first time since 2019. And on the dot plot, a total of six members of the committee suggested they were not in favor of lowering rates. There's also a hawkish line in the statement in considering the extent and timing of additional adjustments to the target range, bringing back language from a year ago when they paused their first round of rate cuts. No surprise, Stephen Myron wanted a half-point reduction, but in something of a surprise, Austin Goolsbee joined Jeffrey Schmidt in dissenting for no cut at all.
Next year's dot plot suggests just one cut coming. Seven members want no move, however, including three who think the rate might go up. The committee statement says economic activity has been expanding at a moderate pace, and the latest forecasts show a consensus GDP figure of 1.7% for this year. But in a big move up, they have revised growth forecasts for 2026 to 2.3%. Unemployment forecast to finish this year at 4.5% will fall back to 4.4% next year. Using identical language from October, the statement says job gains have slowed this year and the unemployment rate has edged up through September. Nodding to the government shutdown caused absence of data, the statement repeats that more recent indicators are consistent with these developments.
There's no change in the inflation assessment. It has moved up since earlier in the year and remains somewhat elevated. However, it is seen slowing markedly next year. PCE headline from 2.9% this year to 2.4% in 2026. And as always, they won't reach their 2% target for two more years in 2028. Core PCE will finish the year at 3%, falling to 2.5% next year. As for the balance sheet, the statement now says reserve balances have declined to ample levels. The Fed will buy shorter-term treasuries, mostly bills but up to three-year notes, as needed to maintain that ample supply. The first operation will be announced tomorrow with the first purchases on Friday of approximately $40 billion in treasury bills.
Michael McKee, stay close as we parse through this. Right now, what you see in markets is a collective cheer. Perhaps this was supposed to be a hawkish cut. The market is taking it slightly differently. S&P had been lower. Now it is positive by almost two tenths of a percent. Euro dollar, euro climbing, dollar falling on the heels of what does seem to be like more Fed cuts.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–7:43
2
What was the Federal Reserve's latest policy decision?
7:43–8:08
3
What were the dissents regarding the rate cut?
8:08–10:21
4
What does the dot plot suggest for future rate cuts?
10:21–11:05
5
How do economic forecasts impact the Fed's decisions?
11:05–18:00
6
How is the Fed's decision affecting market reactions?
18:00–21:25
7
What are the implications of AI on productivity and the economy?
21:25–32:23
Speakers
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