December rate cut still the most likely outcome

The Fed delivered a hawkish rate cut this week, with Chair Jerome Powell pushing back against market expectations for another at the next FOMC meeting. Nevertheless, we would argue that it makes more sense to remain on the same course the Fed had set before the shutdown began and cut in December. Powell’s hawkishness does support our view that next year the Fed will cut by less than the markets are pricing in. We think the Fed will lower rates by only 25bp next year and even that cut won’t arrive until after Powell’s successor is in place.