50. Sans Bowman

They went big.

Two months of high drama crescendoed Wednesday in a 50bps rate cut from Jerome Powell’s Fed, which deliberated this week against the deafening din of frenzied investor speculation.

This time last week, markets had all but thrown in the towel on a half-point move after inflation data covering August came in warmer than expected thanks, as ever, to onerous shelter costs. But a series of mainstream media communications from journalists known for tipping the Fed’s hand, as well as opinion pieces and high-profile exhortations from notable Fed watchers and former officials, all suggested Powell was in fact leaning towards a larger first move in a bid to stay ahead of nascent labor market weakness, consistent with his overtly dovish Jackson Hole address.

Headed into the decision, professional economists (inclusive of Wall Street house calls) were leaning heavily in favor of a 25bps cut. Most of them surely knew by Wednesday that they were on the wrong side. Suffice to say playing it safe is sometimes more important for job security than being right. By contrast, markets were leaning in favor of a 50bps move, having read the writing on the wall (and the writing in the Wall Street Journal).

The Fed’s prolonged stay at terminal is over. It lasted nearly 14 months.

The new dot plot tipped another 50bps of easing by year-end (i.e., 100bps total, including today’s cut), although nine officials saw 75bps or fewer. The “median” official still expects 100bps of additional cuts in 2025. As JonesTrading’s Mike O’Rourke dryly remarked, “the fact that there [was] a relatively even debate as to whether it should be 25 or 50” in September was indicative of very low near-term “economic visibility,” which in turn suggests the longer-term outlook is even cloudier, and thereby not worth speculating about. Less politely: The out-year dots are meaningless except, perhaps, as a compare-and-contrast exercise with market-pricing. But for whatever it’s worth, the 2026 dot suggests another 50bps of cuts down to 2.9%, which is also the new long run dot (i.e., the neutral dot).

The new statement found the Committee describing job gains as having “slowed” a downgrade, so to speak, from the “moderated” language employed in July. The description of the jobless rate was unchanged: It’s “moved up, but remains low.” The inflation language was rearranged, but was otherwise verbatim. Price growth “remains somewhat elevated,” but the Fed reiterated that there’s been “further progress” towards the Committee’s 2% target.

Consistent with what some (myself included) have described as a de facto single labor market mandate, the FOMC adjusted the wording of the paragraph describing the balance of risks. “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the new language read. The September statement reiterated that the Fed’s “attentive to the risks to both sides of its dual mandate.”

The forward guidance retained the obligatory nod to data dependence. The trajectory of policy will depend on a careful assessment of the “incoming data, the evolving outlook and the balance of risks.” Policy — and policymakers — are “strongly committed to supporting maximum employment.”

The SEP found the unemployment rate projections marked higher across the forecast horizon (4.4% for this year and next and 4.3% in 2026) in what amounted to a mark-to-market exercise. The headline and core PCE forecasts were marked lower, and the growth outlook was for all intents and purposes unchanged.

There was no announcement on a QT wind down. That should come no later than November in my view. The Committee’s been pretty luck on that front. Balance sheet runoff’s proceeded very smoothly, and to recycle some language from my September FOMC preview, I don’t think they want to push their luck when it comes to the (fuzzy) LCLoR math or stumble across any other blurry reserve lines without realizing it.

This was never going to be a “clean” decision. The sheer number of communications channels the Fed has to manage — i.e., the statement language, the projections, the dots, the QT guidance and the funds rate itself — means that policy inflection points will present the Committee with a very tough juggling act when it comes to conveying something that looks and sounds like a consistent message. That’d be true even if there was unanimity on the correct course of action. And there wasn’t: Michelle Bowman dissented in favor of a 25bps move.