50 Basis Points. No Unanimous Agreement.

Last month, the FOMC announced a 50-basis-point rate cut at its Sept. 18 meeting, but it was not a unanimous decision.

Fed Governor Michelle Bowman dissented against the decision, preferring a smaller 25-basis-point move. This was the first opposing vote by a member of the Board of Governors since 2005, and the updated forecasts of the 19 FOMC participants provided after the announcement suggested Bowman wasn’t alone.

Although no other voters officially dissented, nine of the 19 participants forecasted 75 basis points or less of rate cuts in the final three meetings of 2024, which would imply no cuts greater than 25 basis points at each meeting. These other voters were clearly not convicted enough to vote against Powell’s guidance and were likely focused more on the ultimate path of rate cuts during the next 12 months than the decision for that one meeting.

Why did the Fed choose a larger, 50-basis-point cut to begin? Perhaps Powell is still feeling the sting of starting too late with rate hikes in late 2021/early 2022 and didn’t want to make the same mistake twice. This assumes, of course, the labor market is on pace to deteriorate at a faster pace than the recent data trend would suggest.

The updated Summary of Economic Projections (SEP) showed a median forecast of 100 basis points of rate cuts in 2024 — including the 50 basis points at that meeting — and another 100 basis points in 2025. By the end of 2026, the fed funds rate would settle at a neutral rate of 2.875%. This forecast through 2025 remains less dovish relative to the bond market pricing for 50 basis points more rate cuts during that timeframe.

There remains a debate as to whether the Fed will go with another over-sized cut at the next meeting in November, but Powell somewhat pushed back on that assumption.

“This is not a committee that feels like it’s in a hurry to cut rates quickly,” he said in responding to questions at an economic conference on Sept. 30.

That would seem to contradict with the Sept. 18 decision, but he was likely trying to level set expectations for upcoming meetings.

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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

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