The Fed is now the most divided it’s been since 2014, voting 9-3 to cut rates by 25 bps. Two Fed governors (Goolsbee/Schmid) voted for “no cut,” and one governor (Miran) voted for a 50 bps cut. The Fed Funds rate now sits at 3.50-3.75%. The Fed’s “dot plot” predicts one cut in 2026; however, the futures market shows market participants betting on two or three cuts in 2026. Powell worked to tamp down expectations of imminent rate cuts in 2026, noting that the Fed is “well positioned to wait and see how the economy evolves…policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis” (aka – “we are not in a rush”). And interestingly he also highlighted that “the fed funds rate is now within a broad range of estimates of its neutral value” (aka – “we are almost home”).
Powell further indicated that Fed staffers believe that federal data could be overestimating job creation by as much as 60,000 jobs a month. Data releases indicate the economy has added about 40,000 jobs per month since April, but Powell noted that “the real number could be something more like a loss of 20,000 jobs a month.” The Fed has its own data. The Fed’s “Beige Book” report from November indicated that “employment declined slightly, with nearly half of districts noting weaker demand for workers. That’s a significant downgrade since the previous report, when employment levels were seen as largely stable.” This could have been what “sealed” this week’s cut. Stay tuned, and Happy Holidays!
