The Fed’s choice of starting its easing process with a 50bps cut is bold, but the new forecasts associated with the policy decision make it plain that, according to the FOMC, a total of 200bps worth of cuts is what could be needed to “keep the soft landing soft”, which is clearly what the central bank is focused on, now that it deems the inflation battle won. As an – important – aside, the FOMC believes that, probably partly because it chose to “start with a bang”, it won’t have to take policy rates into properly accommodative territory in this cycle. Indeed, we do not think
it is a pure accident that the level at which the Fed Funds rate lands at the end of 2026 coincides with their new estimate of its “long-run level”. We think it is an important clue the bond market should not miss.
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