“What Powell did say is he thought by the end of 2027 that the Fed funds rate would be down to 3.31%, which is almost a full point lower than where we are today. That’s good news, but that can change in a month. We’ve seen the data change. We’ve seen the Fed’s perspective change.”
While the rate cut was expected, it became a certainty after recent jobs reports showed significantly fewer jobs created than originally reported. While the Fed is still concerned about inflation, which remains more elevated than its 2% goal, tending to a softening jobs market became a bigger priority.
Mike Fratantoni, senior vice president and chief economist of Mortgage Bankers Association (MBA), said the cut shows that while there are concerns about employment numbers, it isn’t time to push the panic button.
“The projections show that the median FOMC member anticipates two additional cuts in 2025 and one more in 2026, with the expectation that the job market will remain soft while inflation, while rising, won’t move too far before returning to the Fed’s 2% target,” Fratantoni said. “While the decision was not unanimous, with one dissent from the newest governor, Stephen Miran, the strong vote for the 25-basis-point cut suggests that members, while acknowledging that downside risks to the job market have increased, are not panicking about the state of the economy.”
Wednesday’s rate announcement ends a tumultuous month for the central bank. Miran was confirmed just this week to fill an open seat on the FOMC. There is also the ongoing battle to remove governor Lisa Cook for alleged mortgage fraud, a case that is likely heading to the Supreme Court.