Inflation worries tilt the Fed towards slower accommodation

Highlights:

• After today’s cut, the Fed now expect to reduce the policy rate by just 50bps in 2025, delaying to the following years any further accommodation. The FOMC raised again, to 3%, the median estimate of the neutral rate.

• The inflation forecast for next year was revised sharply up and its path has become more uncertain. Therefore, and as the policy rate is approaching the neutral level, the Fed has entered a new phase in its path of accommodation, characterised by more caution. 

• Only some FOMC members have stared factoring in tariffs in their forecasts. The Fed will react to policy only when and to the extent which they will interfere with the achievement of the inflation and employment mandates. 

• The clearly hawkish policy tilt hit the S&P, raised yields, and lifted the dollar to its highest value in two years

Download the full publication below