Image source: WeChat public account Peipei Soha
Reporter: Peipei
In the early hours of Friday, Beijing time, the Federal Reserve announced a 25 basis point reduction in the target range for the federal funds rate to 4.50%-4.75% after a two-day policy meeting, in line with market expectations. The Federal Open Market Committee (FOMC) unanimously approved this decision.
This is the Federal Reserve's second interest rate cut since September. In the statement issued that day, the Federal Reserve said that recent indicators show that the U.S. economy continues to grow steadily. The labor market has generally cooled this year, and the unemployment rate has risen somewhat but remains low. Progress has been made towards the Federal Reserve's long-term inflation target of 2%, but it is still 'somewhat high'.
Federal Reserve Chairman Jerome Powell stated at the post-meeting press conference that further adjustments to the policy stance 'will help maintain a strong economy and labor market'. Over time, monetary policy will move towards a more neutral stance.
From key economic indicators, the U.S. GDP in the third quarter grew at an annualized quarter-on-quarter rate of 2.8%, slowing by 0.2 percentage points from the second quarter, but still above the historical trend of 1.8%-2%. Preliminary data from the Atlanta Fed indicates that U.S. GDP is expected to grow at an annualized quarter-on-quarter rate of about 2.4% in the fourth quarter. In terms of inflation, the core personal consumption expenditures price index (PCE), which is of most concern to the Federal Reserve, rose by 0.3% month-on-month in September, reaching the highest level since May. Regarding employment, due to the impact of hurricanes in the Southeast and the Boeing strike, non-farm payrolls increased by only 12,000 in October, but the unemployment rate remained at a low level of 4.1%.
In September of this year, the Federal Reserve announced a 50 basis point reduction in the target range for the federal funds rate to 4.75%-5.0%, marking the first interest rate cut by the Federal Reserve since March 2020. After starting the easing cycle with a significant rate cut, Fed officials indicated that they tend to adopt a more cautious and conventional approach to rate cuts in the future.
In this meeting, the Federal Reserve did not release the dot plot for the interest rate path. The dot plot released after the September meeting indicated that Fed officials expect another 50 basis point rate cut by the end of the year, a 100 basis point cut in 2025, and a 50 basis point cut in 2026.
The latest 'FedWatch' tool from the Chicago Mercantile Exchange shows that traders expect the Federal Reserve to cut rates by 25 basis points in December, and then pause rate cuts in January to assess the effects of the easing policy.
Due to the U.S. presidential election, this Federal Reserve policy meeting was postponed by one day. Republican candidate and former President Donald Trump won an overwhelming victory in the election and will return to the White House. The Republican Party also won a majority in the Senate. If the House of Representatives is also taken by the Republicans, then Trump's economic policies will be easier to pass.
Trump's economic proposals can be summarized as imposing taxes on foreign entities, reducing taxes domestically, and cracking down on illegal immigration. If all these policies are implemented, they will further amplify the supply-demand conflict in the United States, leading to an increased risk of 're-inflation'. Repeated inflation may slow the pace of the Federal Reserve's interest rate cuts or even tighten monetary policy.
Trump has repeatedly criticized Powell during his first presidential term, claiming that he was not moving fast enough to ease monetary policy and threatening to dismiss him. Trump recently complained that Powell has always been 'either too early or too late' in his decision-making.
Powell stated on Thursday that Trump's victory would not have any impact on the Federal Reserve's decisions in the short term. Although the policies of the next government may affect the U.S. economy, it is still too early to draw conclusions. 'We still don't know what policies will be implemented, and even if we did, we wouldn’t know when,' he said.
He also stated that he would not resign if Trump asked him to.
According to a report from CNN on the 7th, a senior advisor to Trump stated that if Trump is elected President of the United States, it is very likely that he will retain Powell as chairman of the Federal Reserve until Powell's term ends in May 2026.
This advisor stated that while Trump may change his mind at any time, the current view of Trump and his economic team is that Powell should continue to serve as chairman of the Federal Reserve, as the Fed is implementing a rate-cutting policy.