📍#FOMC: Fed cuts 25bps, raises GDP forecast, lowers PCE forecast, Dot Plot continues to show internal division

📌#Fed lowers interest rates by 25bps to 3.5% - 3.75%, the market had expected correctly. The 9-2 vote shows polarization within the Fed:

- Miran wants a 50bps cut.

- Goolsbee & Schmid want to keep it unchanged.

- One wants to accelerate the rate cuts further, while the rest do not want to loosen. The Fed lacks consensus in the upcoming easing cycle after QT ends.

📌The December Dot Plot is very unusual: 6 dots for unchanged 2025, but only 2 opposed in the vote.

=> This means many members keep high dots for defense, but do not want to go against the majority.

The year 2026 is even more extreme: There are both views to raise interest rates, and some want 2-3 cuts, with Miran wanting 6 cuts.

=> This is the most fragmented Dot Plot in the Powell era. Forward guidance in the future will have very low value (at least until the Fed has consensus again).

📌

SEP (economic forecasts released by the Fed 4 times a year) has changed direction: Fed is more optimistic about growth, less worried about inflation.

- GDP forecast for 2026 raised sharply to 2.3%.

- PCE forecast for 2025 reduced from 3.0% to 2.9%.

- Core PCE forecast also slightly lowered.

=> Fed believes inflation can decrease without trade-offs for recession.

📌The policy statement in the Fed's minutes is slightly different from the previous one:

- Keeps the economic description in a "resilient" state.

- No longer mentions "ending QT", nor references to tightening further.

- Reserves in the system are "ample enough" and "ready to buy short-term bonds if needed to ensure the market is not liquidity-starved".

=> Powell did not mention anything about QE, but this Statement leans towards slight easing.