Fed: Dots and easing path steady – ABN AMRO

ABN AMRO’s US Senior Economist Rogier Quaedvlieg reviews the latest Federal Open Market Committee (FOMC) decision, noting that the Federal Reserve (Fed) kept rates unchanged and maintained an easing bias in its statement. He highlights deep divisions within the committee, but concludes that the Fed is likely to hold the federal funds rate steady through 2026, before gradual cuts take it toward a 2.75-3.00% neutral range.

Fed holds rates and keeps easing bias

"The Fed left rates unchanged as expected. The major headline was that four FOMC members dissented, a number not seen since the early 1990s."

"The statement remained unchanged, but it seems that the three dissenters were looking for more explicit two-sided description of the future interest rate decisions. Powell also confirmed there were non-voters that preferred the language change. Still, the majority decided to keep the language intact, meaning the easing bias is still present in the statement."

"The Fed's resolve to keep rates at their current level seems to have only strengthened. The centre of the committee is moving towards a more neutral place, but they are firmly in wait-and-see mode."

"We see no reason to adjust our Fed call on the basis of this meeting, and still see the Fed holding rates steady until the end of the year, where some disinflation and weakness in the labour market will provide a reason to moderately ease, starting with 25bps in December, and another 25bps per quarter, arriving at a 2.75-3.00% bandwidth, the lower end of neutral, by June."

"He [Powell] noted that things could look very different by the June meeting."