Lawler: Observations Ahead of the December FOMC Meeting

From housing economist Tom Lawler:

According to CME FedWatch, the “market-based” probability that the FOMC will cut its federal funds rate target by 25 bp at its December meeting is about 59%. Folks will also play close attention to the release of the FOMC’s Summary of Economic Projections (SEP) from meeting participants. Below is a table showing some of the key projections from the last four SEPs.

Click on table for larger image.

Compared to the SEP from the September FOMC meeting, real GDP growth for 2024 will probably be significant higher than the median projection (and near the top of the forecast range), the unemployment rate will likely be significantly below the median projection, and core PCE inflation will likely be higher than the median projection.

With growth significantly higher and inflation somewhat higher than projected in September by most meeting participants in the second half of this year (and growth was a LOT higher than projected by some meeting participants), one might expect that (1) the projected path of the federal funds rate over the next year will imply fewer rate cuts than was the case in September, and (2) the median (and average) long-term implied neutral interest rate will again move up.

Here is a chart showing futures rate for the federal funds rate for December 2024 through December 2025 for June 12, September 18, and November 15 of this year.

For the second half of 2025, fed funds futures rates on November 15 were almost 100 bp higher than was the case on September 18, and were about 25 bp lower than was the case on June 12.