Well, well, well. After months of “will they or won’t they” drama that made reality TV look boring, the Federal Reserve finally pulled the trigger. On Wednesday, they cut interest rates by 25 basis points (that’s 0.25% for those of us who don’t speak Fed), bringing the federal funds rate down to 4.00-4.25%.
This is the first rate cut since December 2024, which feels like a lifetime ago in market years. Remember when everyone was convinced we’d see cuts earlier this year? Yeah, the Fed had other plans.
The “Dotplot” Crystal Ball
Here’s where it gets interesting. The Fed also dropped their quarterly projections – aka the “dotplot” – which is basically their best guess at where rates are headed. Think of it as the Fed’s vision board, but with more economic jargon.
The consensus? Two more cuts are coming this year, potentially landing us in the 3.50-3.75% range by year-end. Then they’re planning another cut in 2026 and 2027, eventually getting us to that sweet 3.00-3.25% spot.
Plot twist: These projections are actually more dovish than their last forecast. Translation: they’re feeling more generous with rate cuts than before.
The Economic Tea Leaves
So why now? The Fed cited the usual suspects: slowing job growth, rising unemployment (currently at 4.3%), and inflation that’s still being a bit stubborn. They’re basically saying, “Hey, the job market’s looking a little wobbly, so let’s give it some help.”
Their inflation targets are pretty optimistic too. They’re expecting PCE inflation to hit 3.0% by end of 2025 (it’s 2.6% now), then magically drop to 2.1% by 2027. Because if there’s one thing we’ve learned, it’s that inflation always behaves exactly as predicted, right?
The Lone Dissenter
Here’s the fun part: Stephen Miran, the new kid on the FOMC block, voted against the decision. But not because he wanted to hold steady – he actually wanted a bigger 50 basis point cut. Imagine being the person in the room saying, “You know what? Let’s go bigger.”
Market Reaction: *Shrug*
The markets? They basically yawned. The Nasdaq dropped about 100 points, the Dow jumped 400+, and the S&P 500 did its best impression of a flatline. Why the meh response? Everyone saw this coming from a mile away. Plus, some investors were secretly hoping for that 50 basis point cut Miran wanted.
As Jamie Cox from Harris Financial Group put it: “The Federal Reserve is late no more.” Better late than never, right?
Bottom line: This rate cut is less “shocking market event” and more “finally, they did what everyone expected.” But hey, it’s a start, and if their projections hold up, we might actually see borrowing costs become reasonable again. Just don’t hold your breath on that inflation timeline.