Fed Watch: ‘Risk Management' Continues

Core Insights - The Federal Open Market Committee (FOMC) has cut the Fed Funds rate by 25 basis points to a range of 3.75%–4%, indicating a continued "risk management" approach [2][8] - The focus of the Fed is currently on the employment aspect of its dual mandate, especially in light of recent stagnation in job creation [2][3] - Core Consumer Price Index (CPI) is at an annual rate of 3%, while the preferred inflation measure, core Personal Consumption Expenditures (PCE), is at 2.9%, both above the Fed's target [3][8] Monetary Policy Outlook - There is a potential for further rate cuts, with expectations leaning towards another cut at the December FOMC meeting, although the outlook for 2026 remains uncertain [4][8] - The Fed's dot plot suggests only one rate cut in 2026, contrasting with market expectations of three cuts [4][8] - The end of quantitative tightening (QT) is scheduled for December 1st, which may influence future monetary policy [5] Economic Context - The broader economy does not currently necessitate an accommodative policy phase, with a neutral Fed Funds Rate potentially around 3.5% [6][8] - The Fed and bond markets are awaiting new economic data, particularly after the government shutdown, which could lead to significant information releases [6][8] - Future policy moves will be heavily data-dependent, especially regarding employment metrics [6][8]