FOMC Preview: No Change to Policy

Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to be on hold at the January, March and May meetings, with the next rate cut in May.From BofA: We expect the Fed to stay on hold at its January meeting. The focus will be on the March decision and the Trump agenda. Powell is likely to retain maximal optionality by continuing to stress data dependence and insist that the Fed will not pre-judge or preempt policy.emphasis addedProjections will not be released at this meeting. For review, here are the December projections. Since the last projections were released, economic growth has been above expectations, the unemployment rate was slightly below expectations, and inflation at expectations. The BEA's third estimate for Q3 GDP showed real growth at 3.1% annualized, following 3.0% annualized real growth in Q2, and 1.6% in Q1. Current estimates for Q4 GDP are around 2.6%. That would put real growth in 2024, Q4 over Q4, at 2.6% - above the top end of the December FOMC projections. GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 Projection Date2024202520262027 Dec 20242.4 to 2.51.8 to 2.21.9 to 2.11.8 to 2.0 Sept 20241.9 to 2.11.8 to 2.21.9 to 2.31.8 to 2.1 1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. The unemployment rate was at 4.1% in December and average 4.15% for Q4. Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 Projection Date2024202520262027 Dec 20244.24.2 to 4.54.1 to 4.44.0 to 4.4Sept 20244.3 to 4.44.2 to 4.54.0 to 4.44.0 to 4.4 2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. As of November 2024, PCE inflation increased 2.4 percent year-over-year (YoY). PCE inflation is expected to increase to 2.5% YoY in the December report. This is in the December projection range. Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 Projection Date2024202520262027 Dec 20242.4 to 2.52.3 to 2.62.0-2.22.0Sept 20242.2 to 2.42.1 to 2.22.02.0 PCE core inflation increased 2.8 percent YoY in November. Core PCE inflation is expected to increase 2.8% YoY in the December report. This is in the range of FOMC projections for Q4. Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 Projection Date2024202520262027 Dec 20242.8 to 2.92.5 to 2.72.0-2.32.0 Sept 20242.6 to 2.72.1 to 2.32.02.0

Jan 26, 2025 - 19:13

Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to be on hold at the January, March and May meetings, with the next rate cut in May.

From BofA:

We expect the Fed to stay on hold at its January meeting. The focus will be on the March decision and the Trump agenda. Powell is likely to retain maximal optionality by continuing to stress data dependence and insist that the Fed will not pre-judge or preempt policy.
emphasis added

Projections will not be released at this meeting. For review, here are the December projections.

Since the last projections were released, economic growth has been above expectations, the unemployment rate was slightly below expectations, and inflation at expectations.

The BEA's third estimate for Q3 GDP showed real growth at 3.1% annualized, following 3.0% annualized real growth in Q2, and 1.6% in Q1. Current estimates for Q4 GDP are around 2.6%. That would put real growth in 2024, Q4 over Q4, at 2.6% - above the top end of the December FOMC projections.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP¹
Projection Date	2024	2025	2026	2027
Dec 2024	2.4 to 2.5	1.8 to 2.2	1.9 to 2.1	1.8 to 2.0
Sept 2024	1.9 to 2.1	1.8 to 2.2	1.9 to 2.3	1.8 to 2.1

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.1% in December and average 4.15% for Q4.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate²
Projection Date	2024	2025	2026	2027
Dec 2024	4.2	4.2 to 4.5	4.1 to 4.4	4.0 to 4.4
Sept 2024	4.3 to 4.4	4.2 to 4.5	4.0 to 4.4	4.0 to 4.4

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of November 2024, PCE inflation increased 2.4 percent year-over-year (YoY). PCE inflation is expected to increase to 2.5% YoY in the December report. This is in the December projection range.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation¹
Projection Date	2024	2025	2026	2027
Dec 2024	2.4 to 2.5	2.3 to 2.6	2.0-2.2	2.0
Sept 2024	2.2 to 2.4	2.1 to 2.2	2.0	2.0

PCE core inflation increased 2.8 percent YoY in November. Core PCE inflation is expected to increase 2.8% YoY in the December report. This is in the range of FOMC projections for Q4.