Mid-Week Update

Into the last FOMC of 2024

We are facing possibly the last significant event of the year. The December FOMC is unlikely going to match the dovish furore of last year’s performance, where Powell laid out his dovish dots for this year, which ultimately didn’t materialise. People have short memories, but it’s always important to review where you came from and what’s likely going to materialise going forward.

Let’s reflect a little. The most important developments since September have been the reduction in downside risks around the employment side of the mandate and growth data confirming economic resilience. Also, let’s not forget that since the last full SEP update, the Fed has cut 50 bps and then 25 bps again. Most people now see the large cut as a mistake, as it came after a vol shock and some softer employment data, which then reversed.

The consensus for this meeting is that the dot plot should show a somewhat more gradual pace of cuts. Recent Fedspeak suggests that hawks and doves are willing to accept a rate cut in December as part of the initial phase of recalibration justified by accumulated progress in cooling inflation and the labour market. More importantly, however, many FOMC participants have recently voiced that greater caution is warranted for the coming year.

Let’s explore in more detail and check some charts as we move into the meeting.