FOMC Recap: A Festivus for the Rest of Us

In its December meeting, the Federal Open Markets Committee (FOMC) reduced its policy rate to an upper bound of 3.75%, cutting for the third consecutive meeting for a total of 75bps. This was a contentious vote with three dissents (one dovish and two hawkish), the first FOMC meeting with three dissents since November 2019. We expect grievances to be aired in the next few weeks with dissenters and 2026 voters (especially the hawks) explaining why the majority is wrong. With the Fed’s most influential members keeping a keen eye on the unemployment rate, we think that as long as labor demand wanes and unemployment rate increases, the path will be cleared for additional cuts, despite the vocal opposition from the hawks. As for now, assuming labor data evolves consistent with our forecast, we think a cut in January is more likely than not.