Hi YXI friends,

Yesterday’s FOMC meeting perfectly matched our expectations. Here is my prediction from yesterday’s note:

✅ A 25bp rate cut

✅ Two or more dissenting voters on both sides of the hawks & doves - Miran preferring a 50bp cut while Goolsbee and Schmid preferring no change.

✅ “QE once again as interbank lending liquidity thins” - Fed will buy $40 billion of short-term Treasuries every month.

✅ “Fed is roughly at the upper end of the estimated neutral rate” - Powell acknowledged that rates are now neutral multiple times.

FOMC Economic Projections

The Fed has revised its projection for GDP in 2026 - 2028 higher, mainly due to the expected growth impact from fiscal policy and AI. Powell has defended the unchanged unemployment rate expectations as the Fed expects higher productivity - GDP can improve without more people working.

After three consecutive cuts, the bar for further rate cuts has risen. I do think that the Fed will be more patient for the next cut, unless we have very poor Nonfarm Payrolls next. Moreover, seasonally, prices tend to increase more in Q1, and it isn’t easy to guess how much they will jump compared with last year.

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