As widely expected, the Federal Reserve delivered a third consecutive interest rate reduction and maintained their outlook for just one cut in 2026. The vote was 9-3 to lower rates to a range of 3.5% to 3.75%. Two of the dissentions advocated no change in interest rates while a third wanted a 0.50% reduction. This was the first time there was three dissents since 2019.
The dissent and the rate projections division among policymakers that have emerged over whether weakness in the labor mark or stubborn inflation represents the larger danger to the economy.
In their new economic forecasts officials ‘median projection pointed to one cut in 2026 and one in 2027. The rate outlook remained deeply divided. Seven officials indicated they favored holding rates steady for all of 2026 while eight signaled support for at least wo.
Officials upgraded their median outlook for growth in 2026 to 2.3% from the 1.8% they projected in September. The Committee also foresaw inflation declining to 2.4% next year from 2.6% they projected in September.
FRB Chair Powell has always cautioned that the dot-plot is not a pledge or plan and is simply the median of each official’s point in time best guess as to where the Fed will be.
It is however the only benchmark investors have to go on as a gauge of what the Fed might do.
Regarding the balance sheet, the Fed stated it will begin buying $40 billion of Treasury bills per month starting December 12 to help relieve liquidity issues within the banking system.
The neutral rate, or the interest rate that is neither stimulative or constrictive remained in the wide range of 2.6% to 3.9%. This indicator is pivotal regarding the pricing of longer-dated Treasuries.
Short dated Treasuries rallied on the announcement causing the yield curve to modestly steepen. [Note: the market believes there may be two interest rate cuts next year]
Equities were initially muted on the outcome of the meeting but then staged a moderate rally following Powell’s post meeting remarks. Is it because Powell may be considered as a lame duck and more accommodative Fed Chair is expected to be announced? Will he be approved by Congress?
Powell did comment that at this moment he sees no base case that would justify a rate increase.
What will happen today? After the close ORCL posted results that were regarded as mixed, as cloud revenue disappointed, raising concerns that their planned debt load may be too great. Shares are down about 11% premarket.
For what it is worth department, the must own, no risk Internet stock from 2000 finally retraced its 88% loss from that era, making a new high 25 years later.
Last night the foreign markets were mixed. London was up 0.10%, Paris up 0.46% and Frankfurt up 0.08% . China was down 0.7%, Japan down 0.90% and Hang Seng down 0.04%.
Futures are bifurcated as Dow futures ae flat and NASDAQ down 0.5% on OCRL. The 10-year is up 2/32 to yield 4.14%.
