Fed Telegraphs More Cuts But Falls Short of Market Expectations
The market is having a relatively muted reaction to the Fed's latest projections.
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The Federal Reserve delivered the widely expected 25 basis point rate cut but surprised the market by telegraphing two more such rate cuts in the balance of the year.
However, in looking at the updated set of economic projections (SEP) for 2026, the Fed currently sees just one additional 25 basis point rate. Bottom line: While the Fed sees one more rate cut than it did in June, the central bank does not see the need today to telegraph six 25 basis point rate cuts. That helps explain the relatively muted reaction we’re seeing in the market.
Looking at the rest of the SEP, the Fed lifted its GDP guidance for this year and next and sees inflation pressures remaining, which helps explain the Fed sticking with just one rate cut next year. Odds are that the Fed’s revision to three rate cuts for this year reflects not only the slowdown in job creation but also the big revision we saw for the trailing 12-month job creation figures ending in March 2025.
We’ll have more once we’ve digested Fed Chair Powell’s press conference comments and the Q&A session, and what we see should determine how the market trades into Wednesday's market close.
