This week’s Federal Open Market Committee (FOMC) meeting by the Federal Reserve is anything but predictable, with predictions split between the traditional 25-basis-point reduction and the more aggressive 50-basis-point reduction.
The meeting is set to conclude on Wednesday with the rate decision announcement at 2 pm ET (4 am AEST).
Until recently, markets were settled on the prospect of a 25-basis-point cut. However, sentiment shifted late last week, with a 50-point move now seen as a 63% possibility, according to the CME Group's FedWatch Tool.
The Fed has maintained its benchmark fed funds rate between 5.25%-5.5% since July 2023, the highest level in 23 years. Despite recent improvements in inflation and unemployment data, the central bank remains in a delicate balancing act—determining whether to reduce rates aggressively without risking a reignition of inflation pressures.
In addition to the rate decision, the FOMC will release an updated “dot plot,” which outlines where members expect interest rates to head in the future. This meeting's dot plot will offer projections through 2027, providing insights into potential rate cuts and long-term economic trends.
In June, the Fed projected only one rate cut through the end of 2024, but this week’s meeting may accelerate that timeline.
Alongside the dot plot, the FOMC’s Summary of Economic Projections (SEP) will provide updates on unemployment, GDP growth, and inflation forecasts.
The jobless rate, currently at 4.2%, is expected to be revised upward from June’s 4.0% year-end forecast, while core inflation may be lowered slightly from the 2.8% estimate, with inflation now tracking at 2.6%.
At 2:30 p.m., Fed Chair Jerome Powell is also scheduled to hold a press conference to clarify the Fed’s outlook and plans.