The Last Fed Preview for 2024

This week brings us the last Fed meeting of the year. We will get the Summary of Economic Projections (SEP), which is quite an important factor in understanding what the Fed may be thinking.

We saw quite a few changes in the SEP last time. Unemployment projections increased significantly and became the hot topic. Both GDP growth and Inflation numbers decreased. The pace of rate cuts was increased, with a slightly higher longer run or terminal rate.

A lot has changed since the last SEP. We’ve seen:

• An election that brings a change in administration for the next four years

• The progress made with inflation is starting to stall

• The labor market is proving to be more resilient than expected, or at least what was imagined back in September.

In September, we not only got a surprise jumbo rate cut of 50bps, we got changes to the SEP and we saw a Fed getting nervous about being behind the curve, particularly because of the labor market.

The consensus for this week’s meeting continues to remain a cut of 25bps, mainly because inflation hasn’t really spiked and the view is that we will gradually start to see shelter inflation decelerate.

This brings us to the question for next year - Will the Fed continue to think that they are behind the curve or will they start to think that they’ve cut too much, too fast already?

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