The Federal Reserve lowered its fed fund rate target by 50 basis points to the range of 4.75 – 5%, with governor Michelle Bowman dissented the decision in favor of a smaller a quarter percentage point cut.
The outsized rate cut decision received “broad support” among
Federal Open Market Committee (FOMC) members, Chairman Jerome Powell said in the post meeting press conference.
Projections for more front-loaded easing
According to their Summary of Economic Projections (SEP), the median projection for fed fund rate target by the end of this year is now 4.25 – 4.5%, which would mean a further 50 bps reduction in policy interest rate within the remaining two meetings this year. That projection comprises seven FOMC members who projected the target range to land on 4.5 – 4.75% as well as nine members who expects the range to fall on the 4.25 – 4.5% range by the the year-end.
The median rate projection also signals that the target could be lowered to the range of 3.25 – 3.5% by the end of next year, a further 1 percentage point cut from the 2024 year-end median projection. The median projections shows that the rate target might rest at 2.75-3% range, which is also FOMC members’ median “longer term” natural rate estimation, by 2025 and also in 2026.
The more “front-loaded” rate cut projections came as the same time that FOMC members increased their median expectations for unemployment rate as well as lowered PCE inflation projection, compared to the previous SEP release in June.
First dissent vote since June 2022
The Fed doesn’t think they are “behind the curve” in cutting interest rate to protect the economic from sliding into recession and this half-point rate cut can be taken as “as a sign of our commitment not to get behind,” Powell said.
Bowman’s dissent vote is the first time a FOMC member voted against the consensus since the June 2022 meeting, ending a 17-meeting streak of which no Fed official disagreed in the official votes.
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