December flashlight for the FOMC blackout period

Summary

We look for the FOMC to keep rates on hold at its December 13 meeting, an expectation that is universally shared. If realized, the third consecutive hold would suggest that, rather than the FOMC merely hiking at a slower pace, the fed funds rate probably has reached its terminal level of this cycle.

Both sides of the Fed's mandate are moving toward their longer-run estimated levels. The labor market is becoming less tight, and inflation continues to recede.

That said, inflation has not yet receded all the way back to 2%. Consequently, we expect the post-meeting statement will keep the door open to the possibility of additional tightening this cycle. However, while the statement likely will indicate that further tightening remains possible, we would not be surprised for it to hint that another rate hike is less probable.

A more benign inflation outlook is the key to what we believe will be a flat-to-modestly-lower "dot plot" in the Summary of Economic Projections released at the conclusion of the meeting on December 13. We expect that the median dot for year-end 2024 will shift down from 5.125% in the September SEP to 4.875%. For 2025 and beyond, we suspect the median dots will be more or less unchanged.

We look for the FOMC to maintain its current pace of balance sheet runoff (i.e., quantitative tightening).

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