Takeaway: Rates will remain mostly steady after the Fed executed the already priced-in 25 bps cut and painted a muddy picture in their projection for future rate cuts.
Rates fell initially when the Fed’s statement was released, as the projection showed two more 25 bps rate cuts for the two remaining meetings in 2025—one more than most analysts expected. But rates rebounded as a closer look at the individual projections showed a strong possibility of no more rate cuts.
- Bond markets had priced in two more cuts this year, but expected the Fed to only project one to play it safe. If the labor market data turned positive in the coming months, they would not want to take back a rate cut, so it’s better for them to project fewer and then execute more. So when the median projection showed two more cuts, rates fell on the news.
- However, looking at the 19 individual projections:
- Seven participants projected no more cuts
- Two participants projected one more cut
- Nine participants projected two more cuts
- One participant—likely Governor Miran—projected five more cuts.
- That means that Governor Miran’s projection was the “vote” that tipped the median from one to two more cuts. And of the nine projecting zero cuts, or one more cut, seven were in the zero camp.
- In fact, one of the seven projecting no more cuts actually projected no cut for today’s meeting. This can be interpreted as a “soft dissent” to today’s decision, even though there was formally only one dissent, which was Governor Miran’s in favor of a 50 bps cut.
- The dispersion in the outlook and the distribution of the dots should be interpreted as uncertainty over future cuts rather than optimism that the Fed is a pre-set course to cut twice more this year.
Chair Powell’s press conference emphasized the uncertainty in the rate cut projections and pushed back on the optimism for a string of cuts that had built before today’s meeting.
- The post-meeting statement was edited to remove a reference to “the extent and timing” of additional cuts, suggesting they may not lower rates at all at the next couple of meetings.
- When asked about the dispersion in the projections described above, Chair Powell endorsed the view that they reflected uncertainty about the Fed’s path.
- He also clearly stated that there was no widespread support for a larger-than-usual 50 bps cut today, even though some investors and analysts had been betting on one.
- He characterized today’s cut as a “risk management” cut in response to growing risks to the labor market, but also said, “let’s remember that the unemployment rate is at 4.3% and the economy is growing.” He followed that up with a remark that “we have to keep our eye on inflation.”
Mortgage rates will remain steady as bond market participants await further economic data, particularly the next jobs report on October 3.
Chen Zhao
Chen Zhao is the head of economics research, where she produces research on the housing market for public and internal audiences.
Previously, she was an executive director leading housing finance and financial markets research at the JPMorgan Chase Institute. Prior to joining JPMCI, Chen was an economics consultant at Analysis Group, Inc., where she worked on financial litigation cases and led teams conducting health economics and outcomes research on behalf of pharmaceutical companies.
While in graduate school, Chen was with the Center for Economic Studies and the Social Economic and Housing Statistics Division at the US Census Bureau, where she conducted applied microeconomics research using large scale restricted-access linked survey-administrative data. She started her career at the White House Council of Economic Advisers, where she focused on labor and health economics.
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