Fed cuts by 25bp, as expected, shies away from fresh forward guidance

Rate-setters in the US decided on Thursday to ease monetary policy by 25 more basis points, as expected.

Nonetheless, they shied away from providing more forward guidance until the new US administration's policies were known and could be modelled.

On this occasion, the Federal Open Market Committee's policy statement no longer stated that policymakers had gained more confidence that inflation was falling back towards 2% sustainably.

But in his post-meeting press conference Fed boss Jerome Powell said the omission was not a signal.

Instead, Powell said that to have reiterated that phrase would have constituted fresh forward guidance when it was more prudent not to provide it.

Progress had been made on returning inflation to 2.0% and monetary policy remained restrictive, but the best pace at which to return to a "neutral" stance and where that level lay was uncertain, he added.

The decision to reduce the target range for the Fed funds rate to 4.5-4.75% was unanimous, unlike in September.

Back then, governor Michelle Bowman voted for a 25bp reduction instead of 50bp like everyone else on the FOMC.

The FOMC did reiterate on Thursday that inflation remained "somewhat elevated", that the risks to its dual objectives of full employment and stable prices were "roughly in balance" and that the economic outlook was "uncertain".

Regarding the latter, Powell highlighted the existing geopolitical risks and, in response to a question from a journalist, regarding whether rate hikes in late 2025 were possible, Powell said that the current environment was not one in which one could rule out anything one year in advance, although for now the Fed's forecasts were for inflation and policy to continue normalising.