Repeats With No Changes
Dec 18 (Reuters) - Little Surprises Are Expected From the Fed’s Rate Decision With Markets Near Fully Priced for a 25 Bps Rate Cut to Take the Fed Funds Rate to 4.25-4.50%. in Turn, the Bigger Focus for the Dollar Will Be the Statement and the Dot Plot Projections, Both of Which Are Expected to Be More Hawkish Than the September Dots and Guidance.
Recent Commentary From Fed Officials – Shown in the Table Below – Has Leaned on the Hawkish Side, Setting the Tone for the December Meeting as Growth Remains Robust While Inflation Is Above Target Levels.
The General Message From Policymakers Has Been One of Taking a More Cautious Approach, Which Portends to Slowing the Pace of Easing in the New Year. This Is Reflected in Fed Pricing With Around 70 Bps of Easing Priced for 2025 0#Usdirpr. Consequently, Risks Lean in Favour of a Skip as Soon as the January Meeting.
The Other Area of Interest Will Be on the Neutral Rate Estimate, Which Since the End of 2023 Has Been Upgraded Each Quarter to 2.9% From 2.5%.
While There Is a High Degree of Uncertainty Attached to Where the Neutral Rate Is, Fed Officials Have Flagged That the Rate Is Likely Higher Than Currently Assumed With Many of the More Hawkish Members Suggesting That Rates Could Be Very Close to Neutral. That Said, the Long Run Estimate May See Another Upgrade to at Least 3%.
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(Justin Mcqueen Is a Reuters Market Analyst. the Views Expressed Are His Own.)
((Justin.mcqueen@Thomsonreuters.com))
