The Federal Reserve Open Market Committee followed up three consecutive rate cuts at their July, September, and October meetings with a pause in December.

  • The Federal Reserve maintained its target for overnight rates at a range of 1.50% - 1.75%, a pause following three consecutive cuts
  • Market-implied odds of another 2020 cut are about 50%, but markets price virtually zero chance that next move will be a hike
  • The Fed hopes to be on hold for the foreseeable future, though we expect market plumbing problems will tip the Fed’s hand
  • There was no statement discussion of funding market travails, although funding markets will be a major theme at Powell’s presser

Today, the FOMC held steady their target for overnight interest rates at a range of 1.50% to 1.75% based primarily on the notion that the three prior “insurance cuts” need time to work their way into the real economy. It is admittedly hard to disagree on a traditional growth/inflation basis. With economic growth at-trend, unemployment extraordinarily low, and inflation tame, there remains limited basis for further action. But funding market stresses remain which we believe will tip the Fed into further insurance rate cuts in 2020.

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Guy LeBas

Director, Custom Fixed Income Solutions

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