Laura: Maybe it’s the holiday season, or maybe we’re just worn out from all the speculation about the next four years, but the lead-up to this FOMC meeting felt low-key.
Will: Totally agree—and maybe my Nyquil haze is helping keep it that way. Nothing like battling a cold to take the edge off Fed-watching. But seriously, I’d call this meeting a “Hawkish Cut.” They lowered the policy rate by 25 basis points to 4.25%-4.50%, making it a full percentage point of cuts since September.
Laura: A “Hawkish Cut”? What does that mean?
Will: It means they cut rates today but signaled they’ll likely go slower with cuts moving forward. The Fed’s dot plot shows just two rate cuts in 2025, and the market’s only pricing in one 25-basis-point cut for that year. Powell summed it up well when he said, “You slow down when driving on a foggy night or walking into a dark room full of furniture.” Basically, they’re being cautious.
Laura: Makes sense. I noticed 2-year Treasury yields jumped to 4.35%, up 10 basis points. Seems like the market’s buying into the idea of higher rates for longer.
Will: Exactly. Powell hammered home the point that the U.S. economy is strong. He highlighted 2.5% GDP growth for this year and said there aren’t any signs of a meaningful slowdown. Inflation’s still moving in the right direction, but September and October numbers came in a bit hotter than expected.
Laura: What about the labor market?
Will: Good question. Over the last few meetings, they’ve focused on how the labor market is finally finding balance after the COVID disruptions, and Powell reiterated that view. He pointed out a few signs of cooling: it’s getting a little harder to find a job, fewer people are quitting, and job postings are down.
Laura: Let’s circle back to inflation.
Will: Sure. Powell was asked if the Fed might give up on the 2% target, and he shot that idea downhard. They’re committed to it. But he also made an important point: for most people, it’s not about the inflation rate; it’s about the prices of everyday essentials. Eggs, milk, and other staples are more expensive, and those prices aren’t coming down. Even if inflation slows, people still feel the pinch.
On tariffs, he said it’s way too soon to base policy on expectations. There are too many unknowns about how potential tariffs would affect prices in the economy.
Laura: And on a brighter note, Powell seemed pretty optimistic.
Will: Yep, he wrapped things up by saying he feels “very good about the economy” and expects “another good year.” Let’s hope he’s right!
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