The Federal Reserve Open Market Committee (FOMC) concluded their final meeting of the year and reduced the Fed Funds rate by 25 basis points to an updated range of 3.50% to 3.75%. Although in the weeks leading up to the meeting several Federal Governors expressed skepticism about the need to continue to reduce the policy rate, FOMC Vice Chair and NY Fed President John Williams delivered a dovish speech on November 21st telegraphing the adjustment lower in the Fed Funds rate at the December meeting. The FOMC is not unified in their prescription for policy, as Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid both dissented in favor of leaving the policy rate unchanged, while Fed Governor Stephen Miran dissented in favor of a larger 50 basis point reduction in the Fed Funds rate. On a quarterly cadence the FOMC provides additional disclosures to market participants in several forms, and the Chandler team traditionally focuses on the update to the Summary of Economic Projections (SEP). Most of the forecasts for the SEP were in line with the September 2025 forecast, however the upper end to the central tendency on the GDP forecast increased by 0.4% and 0.3%, to 2.5% and 2.3%, respectively, in 2026 and 2027. The central tendency on the projected appropriate policy path for the Fed Funds rate was also stable, with the 2026 and 2027 forecast unchanged at a range of 2.9% to 3.6% and the longer run forecast also unchanged at a range of 2.8% to 3.5%.
Market participants received a limited number of economic data releases this week. On Tuesday, the Job Openings and Labor Turnover survey (JOLTS) was released as of October, and in a positive development the number of job openings increased to 7,670k, a marginal improvement from the July number of 7,208k. The Employment Cost Index was released on Wednesday and came in at 0.8%, an indication inflation metrics are in the process of normalizing. Jobless Claims ticked up to 236k during the week but remain comfortably below levels that would be consistent with an onerous employment backdrop. Continuing jobless claims remain elevated but did contract to 1,838k compared to the prior week’s 1,937k, a modest positive development. Next week additional delayed government economic data will be released, with the payrolls report for November coming out on Tuesday, December 16th. Due to the government shutdown and the inability to collect survey-based data, it is unlikely the unemployment rate data will be updated, an unfortunate development as the trajectory of the unemployment rate will play a significant role in the Federal Reserve’s monetary policy outlook. On Tuesday, the market will also get an update on retail sales as of October, with the consensus forecast indicating a small expansion.
Treasury yields were mixed on a week over week basis, with the two year note moving lower by 3 basis points to a yield of 3.53%, the five year note moving higher by 3 basis points to a yield of 3.75%, and the ten year note moving higher by 5 basis points to a yield of 4.19%, resulting in a steeper two year/ten year treasury curve. The Chandler team has been calling for a steeper curve based on a multitude of factors including the domestic deficit outlook, more competition globally for sovereign debt as many developed market economies are expanding their debt profile, and our view all sovereign debt curves should feature more of a term premium to provide a catalyst for investors to extend the maturity profile of their purchases. In evaluating a six-month forecast horizon for monetary policy and interest rates, the Chandler team believes the Fed Funds rate will be adjusted lower, closer to the mid-point of the Federal Reserve’s view of the neutral rate, and we continue to position portfolios to benefit from a steepening of the two-year/ten-year Treasury curve.
Next week: Empire Manufacturing, Payrolls report, Retail Sales, S&P Global Manufacturing and Services PMIs, Jobless Claims, Continuing Claims, CPI, Existing Homes Sales, and University of Michigan Sentiment.
© 2025 Chandler Asset Management, Inc. An SEC Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and ADP. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.