by Calculated Risk on 10/26/2025 08:21:00 AM
Most analysts expect the FOMC to reduce the Fed Funds rate by 25bps at the meeting this week to a target range of 3-3/4 to 4 percent. Market participants currently expect the FOMC to also cut rates an additional 25bps at the December meeting.
The Fed has indicated that it will cut rates by 25bp to 3.75-4.0% at its October meeting.
We also expect the FOMC to announce an end to balance sheet runoff. We think the Fed
will acknowledge the recent strength of economic activity. But the broader shift in focus
toward the labor mandate probably won’t change. Powell is also unlikely to offer much
guidance beyond this meeting given the lack of official sector data and the current
labor-consumption conundrum.
…
Our base case is that there will again be only one dissent, a dovish one from Governor
Miran, who indicated that he would favor a 50bp cut in a recent interview. But we see
meaningful risks of at least one hawkish dissent as well.
emphasis added
The BEA’s estimate for first half 2025 GDP showed real growth at 1.6% annualized. Most estimates for Q3 GDP are around 2.8%. That would put the real growth for the first three quarters at 1.9% annualized – above the top end of the September projections.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Sept 2025 | 1.4 to 1.7 | 1.7 to 2.1 | 1.8 to 2.0 | |
| Jun 2025 | 1.2 to 1.5 | 1.5 to 1.8 | 1.7 to 2.0 | |
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 4.3% in August. The unemployment rate will likely increase further this year. There was no data for September due to the government shutdown.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Sept 2025 | 4.4 to 4.5 | 4.4 to 4.5 | 4.2 to 4.4 | |
| Jun 2025 | 4.4 to 4.5 | 4.3 to 4.6 | 4.2 to 4.6 | |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of August 2025, PCE inflation increased 2.y% year-over-year (YoY), up from 2.6% YoY in July.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Sept 2025 | 2.9 to 3.0 | 2.4-2.7 | 2.0 to 2.2 | |
| Jun 2025 | 2.8 to 3.2 | 2.3-2.6 | 2.0 to 2.2 | |
PCE core inflation increased 2.9% YoY in August, unchanged from 2.9% YoY in July. There will likely be further increases in core PCE inflation, although CPI measured inflation was below expectations in September.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Sept 2025 | 3.0 to 3.2 | 2.5-2.7 | 2.0 to 2.2 | |
| Jun 2025 | 2.9 to 3.4 | 2.3-2.6 | 2.0 to 2.2 | |
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