CB Views: December 2024 FOMC Preview

Scenario 

Probability 

Assessment

Uber Hawkish Cut (-25bp)

 5%

• SEP dots are split between 2/3 cuts in 2025 (down from 4 in September) and 2026 is unchanged from 2025 @ 3.6-3.8%
• Long-run dot also moves clearly into the low 3% range
• Market Implication: major flattening and risk asset sell-off

Hawkish Cut (-25bp)

Base-Case

55%

• Statement/dots are hawkish and chair Powell suggests a
  “wait & see” approach (implying the last of consecutive cuts)
• SEP dot estimates show 3 cuts in 2025 (down from 4) and 2026 only shows 1 cut (down from 2) with long-run dot @ 3%
• Market Implication: mild flattener, mixed risk asset reaction

Neutral Cut (-25bp)

35%

• Chair Powell presser sounds neutral, offsetting dot adjustment
• SEP dot estimates show 3 cuts in 2025 (down from 4 in September) but keeps the 2 cuts in 2026 like in September dots
• Market Implication: minor rates rally but via a bull steepener

Dovish Cut (-25bp)

5%

• Powell states that the higher unemployment rate is an issue and that inflation is still on track to 2% (esp. with lower OER)
• No major change to the annual or long-run SEP dot estimates
• Market Implication: front-end flies, large risk asset rally