The FOMC cut the fed funds target rate range by 50 basis points to 4.75-5.00 percent at the end of the September 17-18 meeting. The vote was 11-1 with Governor Michelle Bowman preferring a 25-basis point cut. The statement said FOMC has achieved the"greater confidence" it sought on the path of disinflation. The risks to the dual mandate are now"roughly in balance" for price stability and maximum employment. The larger rate cut is not wholly a surprise to markets, but was not a certainty.

The statement said,"The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective." This wording regarding employment is new and suggests that the decision for a larger cut was due to the deceleration in hiring and the FOMC wanting to signal that they want to avoid further cooling in the labor market.

The update to the summary of economic projections (SEP) shows that GDP growth is little revised. GDP for 2024 is down a tenth to 2.0 percent, 2025 and 2026 are still forecast at 2.0 percent, and the new forecast for 2027 is at 2.0 percent. The longer-run projection remains 1.8 percent.

The forecast for the unemployment rate is revised up four-tenths to 4.4 percent in 2024, up two-tenths to 4.4 percent n 2025, up two-tenths to 4.3 percent in 2026, and is 4.2 percent in 2027. The longer-run projection is 4.2 percent.

Forecasts for inflation as measured by the PCE deflator is revised down. PCE inflation is revised down three-tenths to 2.3 percent in 2024, down two-tenths to 2.1 percent in 2025, unrevised at 2.0 percent in 2026, and at 2.0 percent in 2027. Core PCE inflation is revised down two-tenths to 2.6 in 2024, down at tenth to 2.2 percent in 2025, and unrevised at 2.0 percent in 2026, with 2.0 percent for 2027. The longer-run projection remains at 2.0 percent.

The projection for the midpoint of the fed funds target range at the end of 2024 is 4.4 percent, a sharp seven-tenths lower than in the June projection. This suggests two more rate cuts of 25 basis points each at the November and December FOMC meetings. The midpoint for 2025 is now 3.4 percent, five-tenths below the prior forecast. In 2026 the midpoint is forecast at 2.9 percent, two-tenths below the previous forecast and 2027 is also forecast at 2.9 percent.

The Fed is widely expected to cut rates, not by 50 basis points, but by an incremental 25 basis points to a range of 5.00 to 5.25 percent. The meeting will also include quarterly forecasts that will update how much the FOMC expects to cut rates in coming meetings.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.