Ongoing elevated downside risks to the labor market will likely encourage the Fed to cut interest rates by a quarter-percentage point on Wednesday, say Barclays economists. These were introduced in 2007, but it wasn’t until 2011 that we started to get the table that you see here, or a variation of it, released with the FOMC statement. Then in 2020, we started to get the full set of summary of economic projections, and we’ll talk about some of the other little nuggets that we get from that throughout the next couple slides.
The Nasdaq held on for a 0.6% gain to finish at 23,958 on strength in Nvidia. Still, he acknowledged that, to some extent, today’s consumer spending is powered by the consumers who are doing best financially. Considering how much stocks and other asset prices have risen in the past couple of years, that seems like something to keep in mind going forward. Powell said that, looking at the individual components of inflation, the Fed believes that current price increases linked to tariffs on imported goods are the major reason why overall inflation is notably higher than the Fed’s 2% target. If — a big if — those tariff impacts fade, Powell seems to think that inflation should fall close to the 2% target that has eluded the Fed for several years now.
As expected, it reduced interest rates once again, by a quarter-point. The stock market is signaling a higher open as the October Fed meeting kicks off. The Federal Open Market Committee will conclude its gathering tomorrow afternoon, with the central bank widely expected to announce its second straight rate cut. The Federal Reserve is widely expected to cut interest rates at its October meeting as inflation holds steady and downside risks to the labor market remain. And given the risks to the labor market and little change in inflation, the group is anticipating another rate cut in December and two more in 2026 – at the Fed’s March and June meetings.
Should you open a CD ahead of the Fed announcement?
That was formalized even further in January of 2000 when the FOMC started to release an FOMC statement after every meeting. However, it’s still the case that there is high levels of uncertainty around the outlook. So, things we can purchase, other surveys, what other companies are saying. And so again, it’s there’s so many avenues that we get this data, and it’s a lot of information and a lot of work.
- The Board of Governors and the district bank presidents together serve on the Federal Open Market Committee.
- The interaction of all of the Fed’s policy tools determines the federal funds rate or the rate at which depository institutions lend their balances at the Federal Reserve to each other on an overnight basis.
- So we see the downward revision to GDP growth in 2025, as well as a slight downward revision in 2026.
- When the meeting is held, all19 members participate in the discussion.
What time will the Fed statement be released and what changes are expected?
- If — a big if — those tariff impacts fade, Powell seems to think that inflation should fall close to the 2% target that has eluded the Fed for several years now.
- Because this session is focused on the FOMC itself, we’re not going to delve too deeply into monetary policy.
- So, all 12 bank presidents and the governors discuss current economic conditions.
- Complete transcripts featuring word-for-word dialogue that took place during FOMC meetings are published five years later.
So, if I go to the next slide, you’ll see this is the table that’s released. And then we have this summary table, that kind of aggregates them in certain ways. It’s really interesting, too, about the communication method. It’s a little wild to think that before 1994 there actually wasn’t an announcement right after the FOMC meeting, telling us what the FOMC decided to do. That first occurred in 1994, and then, after a few of those, they decided officially in 1995 that any time they would make a change to policy there would be an announcement following the meeting.
These were introduced in 2012, so we think we had the SEP first introduced in 2007, five years later, this introduction of the appropriate path of policy. This statement is based on the FOMC’s commitment to fulfilling a statutory mandate from Congress to promote maximum employment, stable prices, and moderate long-term interest rates. Because monetary policy determines the inflation rate over the long term, the FOMC can specify a longer-run goal for inflation. In the statement, the FOMC reaffirmed its analysis that a 2% target inflation rate was the rate most consistent with its statutory mandate. Chair Powell’s press conference has now ended, as he affirmed the Fed’s decision to cut rates but stated a December cut was not a foregone conclusion. He communicated his view of the economy, despite lacking reporting due to the government shutdown, and once again avoided landmines of criticizing anyone or anything that could cause trouble.
Understanding the Federal Open Market Committee (FOMC)
And I think we have a slide here that I can show kind of our key ways of doing that. The president of the New York Federal Reserve also votes at every meeting, because this is where the open market operation trading desk is. The FOMC has eight regularly scheduled meetings each year, but they can meet more often if the need should arise. The meetings are not held in public and are therefore the subject of much speculation on Wall Street, as analysts attempt to predict whether the Fed will tighten or loosen the money supply with a resulting increase or decrease in interest rates. Ultimately, however, the Fed describes itself as “data dependent,” deciding what to do with interest rates based on employment, inflation and growth data. It was hard for even doves to deny the need to raise interest rates as inflation pushed to the highest level since the 1980s.
This is the FOMC statement that was released following the June meeting just happened last week. So you see, kind of the when everyone first gets the report, what they really zoom in on is what happened with the key policy rate with the federal funds rate. So, you see here in the middle, we’ve highlighted it in orange. The committee decided to maintain the target range for the federal funds rate at 4.25 to 4.5 percent, where it has been now since December of last year.
One thing I will recommend is if you’re interested in the FOMC press briefing, but you missed when it was airing live, the Federal Reserve Board’s website has the recordings as well as the transcript, which includes reporter questions so that can be a really good source. One of the other things that was interesting was the discussion around the framework review. And then the second set of that process will be to look at communication tools, and that will include the summary of economic projections that we just learned about. So, make sure to stay tuned to see what, if any changes do occur to these really important communication tools that the Fed has. Now the last paragraph, as Amanda noted, tells us, how did FOMC members vote? And we see it was a unanimous decision to vote for this stance of policy to maintain at that current range.
During the meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts. All participants—the Board of Governors and all 12 Reserve Bank presidents—share their views on the country’s economic stance and converse on the monetary policy that would be most beneficial for the country. After much deliberation by all participants, only designated FOMC members get to vote on a policy that they consider appropriate for the period.
Federal Open Market Committee (FOMC): What It Is and Does
So the FOMC, because it is both the bank presidents and the governors, they’re actually selected using different ways. The district bank presidents are actually selected through a process that includes their regional areas. So how each district bank president is selected is again representative of that kind of regional interest, and that balance between national and regional interest that you see, and how the Federal Reserve was created. So the district bank presidents are chosen by their member bodies and then they are with advice from the Board of Governors as well. But they’re actually representative, chosen by representatives of those communities, and then you see them working really diligently within those communities to make sure that they are experts at what is happening in the local economy, and then they bring that to the table. And then the voting structure again, is another way that’s meant to ensure that there’s a diversity of viewpoints in the policy making process.
The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.
How well do you know the Fed?
There you can watch videos, go through modules, have articles and readings about the monetary policy tools, the switch between limited to ample reserves and how the Federal Reserve System is set up. The FOMC’s decisions arguably impact your wallet more directly — and more quickly — than any other policymaker in Washington. What it decides to do can steer the broader economy away from recessions, while also influencing how much you pay to borrow and what you’re paid to save. Those differing ideologies, however, could matter even more than usual as the Fed juggles what to do next with interest rates. An official who takes a hard stance on inflation may be more inclined to keep borrowing costs higher for longer, while a policymaker focused on protecting the job market might be more inclined to let up on the brakes.
With the Federal Reserve expected to cut rates at its two final meetings of 2025, many investors may be wondering how they can prepare their portfolios. We don’t have to wait until the next meeting to know what policymakers are thinking. So the public can really understand, not just what is happening, but the why behind it as well. So we’re going to start while we’re waiting for you all to do that, we’re going to go ahead and start with some of the questions we received in advance. Our first one is, how does the FOMC maintain its independence from political pressures, especially when making decisions that can have significant economic and political implications. And because we want to make sure you have all of these resources readily available.
Editorial integrity
“While a cut in November is more likely after the latest inflation data, it’s by no means guaranteed,” says Hal Cook, senior investment analyst at Hargreaves Lansdown. The Bank of Japan is expected to hold rates steady at its gathering on Thursday, October 30, but BlackRock strategists will be watching “for hints of the timing of a next hike.” However, they believe he will emphasize that “downside risks to employment remain elevated,” and will “reiterate that the slower job gains reflect in part immigration restrictions and aging.” “At the beginning, the only significance was that I like purple ties,” Powell replied. At his next press conference, he said he went to reach for a red or blue tie and thought, “Maybe not … so I wind up wearing purple.” While the strategists say there is no perfect predictor of Fed policy, the yield on the 2-year government bond note has proven to be one of the best.
Their projections are also included in the Fed’s quarterly projections. When we look at both inflation metrics, you see that the majority of FOMC participants thought that the risks were weighted to the upside on their projection. So it’s really helpful when we talk about the amount of uncertainty in the forecast, in the economy still, this year, to get a sense of okay, well, how are policymakers viewing the risks around their individual forecasts?
It’s a part of our ongoing Dialogue with the Fed series where our goal is always to connect you with experts and information, to better understand the economy. Throughout the discussion today you can ask us questions by using Zoom’s Q&A feature found at the bottom of your trading indices strategies zoom window. To do this, enter your question into the Q&A Box, then click send – that’s it.