The highlight of the past week was the December 10 FOMC outcome. The expected 25-bps cut was delivered, although there were three dissents on the decision, the most since 2019. Reflecting the diversity of opinion at the Fed, two dissents were in favor of no rate move and one dissent, unsurprisingly the most recent appointee, favored a 50-bps cut. Chairman Powell declared that gradual labor market cooling justified the rate cut but that “risk management” cuts are likely now over, absent clear and more severe labor market weakness, since policy is closer to neutral. “We are well positioned to wait and see how the economy evolves from here,” Powell stated in his press conference. The Summary of Economic Projections (SEP) was relatively unchanged from September; GDP was marked modestly higher, and there was little change to inflation and unemployment rate projections. The dot plot, despite a wide range of participant projections, remained the same and still reflects a yearend-2026 median projection of 3.375%. Chair Powell sounded relatively relaxed about inflation and optimistic that it would gradually return to the Fed’s 2% target, especially if/when tariff impacts fully feed through the economy and potentially dissipate. Indeed, he stated that “it’s really tariffs causing inflation overshoots”. The FOMC meeting produced notable news relevant to money markets; please see herein for further information.    

Back by popular demand, Frank Farone, Managing Director of Darling Consulting Group, returns to join us once again for an informative session focused on Liquidity and Asset/Liability Management. Frank will address key challenges and provide actionable strategies to help FHLBNY members stay resilient and take advantage of the new rate environment now and in the months/years to come.

We are now experiencing a “higher for longer” phase in the interest-rate cycle, accompanied by an inversion in the short-to medium terms followed by a steepening (see following chart). The Fed is still in a restrictive posture, but market expectations indicate a near-term easing, however, uncertainty surrounding the potential of future heightened growth leading to elevated inflation is causing steepening at the longer-end of the curve…