Fed poised for 25bp cut to 3.50–3.75% – Rabobank

The FOMC is expected to deliver a 25bp rate cut with potential dissents, reflecting the tension between inflation risks and weakening employment. Federal Reserve (Fed) Gov. Jerome Powell is likely to emphasize data-dependence heading into January, while the new dot plot may still underplay the policy influence of the incoming Trump administration, Rabobank's Senior US Strategist Philip Marey reports.

Powell expected to downplay policy split

"We expect the FOMC to make a 25 bps cut to the target range for the federal funds rate to 3.50-3.75% from 3.75-4.00%. We also expect dissents, possibly in opposite directions."

"At the press conference, Powell will probably downplay any dissent as something that follows from a challenging situation with upside inflation risk and downside employment risk. Regarding the January meeting, he is likely to stress that the Fed is data-dependent and makes decisions meeting-by-meeting."

"The new dot plot will be of interest, but may still underestimate the impact of the Trump administration on the Fed next year. Looking ahead to next year, we expect the Fed to continue its cutting cycle at least until their estimate of the neutral rate is reached."