FOMC Fed Funds Range Is Reduced; Economic Growth & Inflation Expectations Raised
by:Tom Moeller
|in:Economy in Brief
Summary
- FOMC lowers funds rate target by quarter point after stability since December 2024.
- The decision was approved by all but one FOMC voter.
- Expected GDP growth & price expectations raised.
At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was reduced to 4.00%-to-4.25% from 4.25%-to-4.50%. It was the lowest range since December 2022. The current range compares to a high of 5.25%-to-5.50% in mid-September 2024. Today’s target range matched expectations in the Action Economics Forecast Survey. The action was supported by all but one FOMC member who preferred lowering the target range by 50 basis points.
The following statement was released after today’s meeting: “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.”
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”
For this meeting, the Fed updated its economic expectations versus those in June. Expected real GDP growth in 2025 was raised to 1.6% from 1.4%, in 2026 to 1.8% from 1.6%, 2027 to 1.9% from 1.8% and 1.8% in 2028. The expected unemployment rate at end of 2025 was unchanged at 4.5%; at the end of 2026, it was lowered to 4.4% from 4.5% and at the end of 2027 to 4.3% from 4.4%. The rate in 2028 was forecasted to be 4.2%.
Expectations for PCE price inflation in 2025 held at 3.0%; in 2026, they were raised to 2.6% from 2.4% and in 2027, they were left at 2.1%. The forecast for inflation in 2028 is 2.0%. Core PCE inflation forecasts for 2025 were left at 3.1% but raised to 2.6% from 2.4% for 2026, and for 2027, they were unchanged at 2.1%. Core inflation in 2028 is expected to be 2.0%.
The projected Fed funds rate for year-end 2025 was lowered to 3.6% from 3.9%. For 2026, it was lowered to 3.4% from 3.6%, and for 2027, it was reduced to 3.1% from 3.4%. For yearend 2028, it was set at 3.1%.
The U.S. economic figures can be found in Haver’s USECON database & the interest rate data are in the WEEKLY & DAILY databases. The expectations figure is contained in the AS1REPNA database.
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
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