What happened last week…
The Federal Open Market Committee (FOMC) reduced interest rates by 50-basis points to a range of 4.75% to 5.00%. It is the first rate cut in more than four years and comes after the Fed kept rates unchanged after the previous eight meetings. The decision for a large reduction was made after a vote of 11-1, with the lone dissenting vote favoring a 25-basis point cut. By the end of this year, the FOMC projects that it will reduce rates by another 50 basis points. The final meetings scheduled for this year take place on November 7 and December 18.
Federal Reserve Chairman Jerome Powell said, “This recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation as we begin the process of moving toward a more neutral stance. We are not on any preset course. We will continue to make our decisions meeting by meeting.” Regarding the effect on the labor market, Powell added, “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation.”
Looking ahead, the Fed’s dot plot forecasts a full percentage point cut by the end of 2025 and a half point cut by the end of 2026. Combined with the projected additional half point cut by the end of 2024, that means an interest rate by the end of 2026 would be two percentage points lower than where it is currently. The Fed also updated its economic projections. For 2024, change in real GDP is expected to be 2.0% (down from 2.1% in June), the unemployment rate is expected to be 4.4% (up from 4.0%), PCE inflation is expected to be 2.3% (down from 2.6%), and core PCE inflation is expected to be 2.6% (down from 2.8%). For 2025, projections foresee change in real GDP of 2.0%, an unemployment rate of 4.4%, PCE inflation of 2.1%, and core PCE inflation of 2.2%.
Existing home sales for August missed expectations (3.90 million) as it decreased to 3.86 million from the upwardly revised 3.96 million (from 3.95 million). It is the lowest reading since October 2023 (3.85 million).
Happening this week…
On Wednesday, new home sales for August are expected to decrease to 700,000 from 739,000, which was the highest reading since May 2023 (741,000).
On Thursday, the GDP growth rate (final estimate) for Q2 2024 is expected to match the second estimate of 3.0%. The Q1 2024 rate of 1.4% was a decrease from the Q4 2023 reading of 3.4% and the lowest growth since the contractions during the Covid pandemic.
Thanks for Reading!
- The Rockline Team