FOMC Preview: No Change to Policy
by Calculated Risk on 1/26/2025 12:01:00 PM
Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to be on hold at the January, March and May meetings, with the next rate cut in May.
We expect the Fed to stay on hold at its January meeting. The focus will be on the March decision and the Trump agenda. Powell is likely to retain maximal optionality by
continuing to stress data dependence and insist that the Fed will not pre-judge or preempt policy.
emphasis added
From Goldman:
The January FOMC meeting is unlikely to offer much new information. The statement might note that the labor market appears to have stabilized but is unlikely to provide strong guidance about the March meeting or the timeline for further cuts. … Our baseline forecast calls for two 25bp cuts this year in June and December and one more in 2026 because we expect inflation to keep falling and do not expect tariffs to restrain the FOMC indefinitely.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| Dec 2024 | 2.4 to 2.5 | 1.8 to 2.2 | 1.9 to 2.1 | 1.8 to 2.0 |
| Sept 2024 | 1.9 to 2.1 | 1.8 to 2.2 | 1.9 to 2.3 | 1.8 to 2.1 |
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 4.1% in December and average 4.15% for Q4.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| Dec 2024 | 4.2 | 4.2 to 4.5 | 4.1 to 4.4 | 4.0 to 4.4 |
| Sept 2024 | 4.3 to 4.4 | 4.2 to 4.5 | 4.0 to 4.4 | 4.0 to 4.4 |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of November 2024, PCE inflation increased 2.4 percent year-over-year (YoY). PCE inflation is expected to increase to 2.5% YoY in the December report. This is in the December projection range.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| Dec 2024 | 2.4 to 2.5 | 2.3 to 2.6 | 2.0-2.2 | 2.0 |
| Sept 2024 | 2.2 to 2.4 | 2.1 to 2.2 | 2.0 | 2.0 |
PCE core inflation increased 2.8 percent YoY in November. Core PCE inflation is expected to increase 2.8% YoY in the December report. This is in the range of FOMC projections for Q4.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2024 | 2025 | 2026 | 2027 |
| Dec 2024 | 2.8 to 2.9 | 2.5 to 2.7 | 2.0-2.3 | 2.0 |
| Sept 2024 | 2.6 to 2.7 | 2.1 to 2.3 | 2.0 | 2.0 |
