Fed Cuts 25bps with Commitment to Additional Moves but not a Particular Timeline

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As expected, the Fed opted to cut rates 25bps in November, taking the federal funds rate to a range of 4.50% to 4.75%. Marking now the second consecutive reduction in policy, this month’s cut is a notably smaller reduction following an outsized 50bp cut out of the gate in September.

In the details of the statement, the Fed maintained a relatively positive assessment of conditions. The overall economy, the Fed says, remains “solid.”

The labor market too remains solid, according to the November statement, although conditions have generally “eased.” The unemployment rate has moved higher, but still remains “low,” a somewhat amended assessment from the September language noting, “Job gains have slowed.”

On the inflation front, the Fed removed language regarding achieving “greater confidence” that inflation is moving sustainably toward 2%, although the statement noted inflation has “made progress” toward the central bank's target pace. In other words, inflation continues to improve, further abating from a recent peak in Q2 2022. Although remaining above 2%, Fed officials recognize there is still more ground to cover before declaring mission accomplished.

Going forward, the Fed will remain, as always, data dependent, with the statement noting, “The

Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

Additionally, according to the November statement, the Committee judges that the risks to achieving its employment and inflation goals are “roughly in balance,” mimicking the language in the September statement.

The statement, furthermore, noted, “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”

The decision was unanimous with all 12 members voting in favor of a 25bp cut.

During the press conference, Chair Powell reiterated a data-dependent position, noting that “nothing in the economic data suggests the Committee has any need to be in a hurry” to cut rates further. Furthermore, Powell did not commit to a timeline for future cuts. “By December, we’ll have more data, I guess one more employer report, two more inflation reports and lots of other data, and we’ll make a decision as we get to December,” Powell said.

Additionally, when asked if he would step down if President-elect Donald Trump’s administration asked him to, Powell simply replied “no.”

Bottom Line: A somewhat benign policy move – and announcement – yesterday afternoon, in line with expectations of a 25bp cut. Of course, a reduced level of policy action in November was never really in question. Given the strength

of the data as of late, the Fed’s “strong start” out of the gate in September was arguably unnecessary or overly aggressive in nature, thus reducing the bar for a second round cut this month. In fact, given the hotter-than-expected read on the consumer and broader growth as well as inflation, there was ample justification to potentially skip a second round cut this week altogether.

However, given that bypassing November, just one meeting after an outsized rate cut in September would likely be interpreted as an omission of a policy error, and given the cover provided by the recent hurricane-related weakness in the October jobs report, the Fed was somewhat backed into a policy corner, with the Fed ultimately opting to continue along the pivot pathway, albeit with a lesser, 25bp move.

Looking out beyond the Fed’s most recent decision, with the Committee reiterating a data-dependent stance, should the data remain as solid as it has with inflation proving stubbornly sticky as it has, there is ample support and reason to potentially hold policy steady as soon as December, the final meeting of the year, as well as reduce 2025 policy action to a slower and more tempered pace.

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