MNI US Macro Weekly: Fed’s New Cautious Phase Dominates

 Executive Summary

• The FOMC decision and Summary of Economic Projections dominated proceedings this week, bringing with it multiple hawkish surprises.
• Not only were the FOMC’s new rate and inflation projections raised more than expected but the Statement was more cautious, and there was even a surprise dissent against the well-anticipated 25bp rate cut. As Chair Powell put it in the press conference, the FOMC is “in a new phase in the process” of easing policy, and “from this point forward, it's appropriate to move cautiously and look for progress on inflation.”
• Unlike many FOMC meetings, markets headed in a decisive direction upon the release of the decision, and Powell’s post-meeting commentary did nothing to stem the flow. Subsequent days admittedly have seen a paring of Wednesday’s sell-off although there’s still only one further 25bp cut fully priced for 2025.
• In data, core PCE inflation surprised a touch lower at 0.115% M/M (expected 0.13-0.14) along with some mixed to weaker revisions. Recent trend rates of ~2.5% annualized are running under the 2.8% Y/Y which will give FOMC members at least some relief, but the supercore remains too high at 3.5% Y/Y.
• GDP growth was revised higher to 3.0% annualized in Q3, with strong domestic demand, and signs of more of the same in Q4 tracking.
• Jobless claims surprised lower, further supporting that notion that whilst the labor market is broadly cooling there aren’t sign of a significant deterioration.
• First post-FOMC Fedspeak: Hammack explains her dissent as a “close call”, Daly “very comfortable” with new 2025 median dot of two cuts for the year, Williams sees policy “somewhat” restrictive and Goolsbee now sees a slightly shallower rate path in 2025.

PLEASE FIND THE FULL REPORT HERE: US week in macro_241220.pdf