The Federal Open Market Committee (FOMC), the policy-setting arm of the U.S. Federal Reserve (Fed), cut the target federal funds rate by 25 basis points (bps) on November 7, to a range of 4.5% to 4.75%. This was the second in a widely anticipated series of rate cuts, following an initial reduction of 50 bps on September 18.

Beyond the headline policy move, here are some additional observations on the November FOMC meeting.

  1. The FOMC kept its asset purchase program intact. Its post-meeting statement said that the economy continues “to expand at a solid pace,” while the unemployment rate “has moved up but remains low”. In a divergence from the September release, policymakers said that “inflation has made progress” toward the Fed’s 2% goal, omitting a previous assertion of “greater confidence” in that outcome; inflation remains “somewhat elevated.”
  2. As for the bigger picture, the FOMC judged that “the risks to achieving its employment and inflation goals are roughly in balance”; it characterized the economic outlook as “uncertain.”
  3. Some clues to the pace and size of future cuts were offered by Fed Chair Jerome Powell in his press conference after the FOMC meeting. According to a Bloomberg news report, Powell said he doesn’t rule “out or in” a cut at the December FOMC meeting. “We’re going to wait and see” how the economic data shapes up by December. Monetary policy “is still restrictive,” he added. The Fed “would be concerned” if it saw long-term inflation expectations becoming de-anchored, according to Powell, but at the current time, they are not. Powell avoided questions about the fiscal policy implications of the U.S. election results and their potential impact on monetary policy.
  4. Based on trading in fed funds futures on November 7, markets have priced in a 67% probability of a cut of 25 basis points at the final FOMC meeting of the year in December. That would bring fed funds to an implied rate of 4.4%.
  5. By way of comparison, the so-called “dot plot” from FOMC members issued on September 18 showed a median year-end projection for the fed funds rate of 4.38%. The median estimate for the end of 2025 was 4.13%.
  6. In our view, the ongoing moderation in inflation gives policymakers the ability to offer support (in the form of a so-called “Fed put”) to the U.S. economy should the need arise. Right now, the Fed is cutting rates while economy is in good shape. Overall, these factors indicate a broadly supportive backdrop for risk assets.

Investment Implications

After the second move in the Fed’s rate-cut cycle, where might investors focus their attention? Here are some areas to consider:

Fixed Income

Core and core-plus strategies may be particularly well positioned after the Fed’s move. Current starting yields present an attractive entry point for intermediate-term bonds. Short-duration bonds continue to have a favorable risk/return profile in the current rate environment. Blending core bonds with short-term credit may provide a way to realize attractive income while mitigating rate volatility.

The “soft landing” scenario for the U.S. economy remains intact, in our view, providing a positive environment for credit. Among the approaches to consider are multi-sector bond, short duration high yield, and opportunistic credit strategies.

High-quality and intermediate-term municipal bonds are currently providing attractive tax-equivalent yields. The high yield muni segment also merits consideration, in our view.

Equities

We continue to emphasize investing in quality companies with durable competitive advantages. We do this in growth and value stocks. We continue to see attractive valuations in international equities. We also believe companies in the innovation space, characterized by rapid revenue and earnings growth, are also well positioned for the current environment.