Rabobank's Senior Macro Strategist Bas van Geffen analyzed the latest Federal Open Market Committee (FOMC) decision, highlighting a unanimous 25 basis point increase in the Federal funds rate and a shift toward a higher policy rate trajectory for similar inflation outcomes [1]. The Fed's updated economic projections indicate that achieving comparable inflation results will require maintaining a much higher policy rate than previously anticipated [1].
Van Geffen expects this rate hike to be a 'one-and-done' move, but notes that the Fed's new reaction function has prompted Rabobank to revise its forecast for future rate cuts. Rabobank now anticipates only one cut in 2027 and one in 2028, raising its terminal rate assumption from 3.00-3.25% to 3.25-3.50% [1]. This adjustment reflects the Fed's commitment to defending its monetary policy independence, as evidenced by the FOMC's projections [1].
The analysis also suggests that the policy rate may remain higher by the time President Trump leaves office than when Warsh took over at the central bank, underscoring the Fed's determination to maintain a restrictive stance for an extended period [1]. While Rabobank believes the Fed may be forced to cut earlier next year than it currently expects, the overall outlook points to a slower and more limited cutting cycle [1].
CONCLUSION
The Federal Reserve's latest decision and projections signal a higher-for-longer rate environment, prompting Rabobank to revise its expectations for future cuts and terminal rates. Market sentiment is cautious, with implications for a slower easing cycle and sustained monetary policy independence. Investors should prepare for fewer and later rate cuts than previously anticipated.