NDR: Policy is restrictive

This week’s FOMC rate decision holds little surprise, with markets nearly certain of a 25-basis-point cut, aligning with our expectations. This would lower the fed funds target range to 4.25%–4.50%, 100 basis points below the cycle peak. Attention will shift to whether the Fed pauses in January, with markets giving a 75% chance of no cut. We agree, though a case for another cut exists: a new administration with unclear policies and a falling employment-to-population ratio (59.8% in November, the lowest since February 2022) could justify further easing (chart above).

Policy remains restrictive, though less so. As the Fed nears the neutral rate, a shift to quarterly rate cuts is likely, whether starting in January or March. Broader outcome ranges and higher uncertainty suggest risks lean toward stronger growth and inflation.

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