Federal Reserve officials indicated that they may continue to cut rates for now, and investors still expect them to do so at their meeting on December 17-18, but how much they will cut afterward remains an open question.
The upcoming Federal Reserve meeting minutes are expected to show the beginning of a debate that will shape the financial landscape facing the incoming Trump administration.
The meeting minutes will detail the situation during the Federal Reserve's monetary policy meeting on November 6-7, when officials grappled with economic growth data that exceeded expectations and inflation that was higher than anticipated. Despite a slowdown in non-farm employment growth in October, policymakers believe the U.S. economy continues to exceed expectations.
Federal Reserve Chairman Powell announced during a press conference on November 7 after lowering its benchmark interest rate by 25 basis points to a range of 4.50%-4.75%, stating, "The performance of the U.S. economy is actually remarkable, with strong growth, a robust labor market, and declining inflation."
Powell discussed the Federal Reserve's plan to make monetary policy less restrictive, ultimately neither stimulating nor suppressing economic activity, saying, "We are moving towards a more neutral stance... we can only see where the data will lead us... I do not rule out the possibility of a rate cut in December, but I cannot confirm it either."
Public comments since the meeting have shown a wide divergence among Federal Reserve officials: some believe interest rates may be close to neutral, suggesting the Federal Reserve is nearing a pause in rate cuts; others anticipate that the rate-cutting cycle may last longer.
Powell stated a week after the monetary policy meeting that the economy "has not signaled any urgent need for us to cut rates" and that the Federal Reserve can "carefully" decide whether to further lower borrowing costs. His comments led to a steady decline in market expectations for a rate cut next month.
Trump Effect
While officials like Federal Reserve Governor Cook focus on what she believes will still be a gradual easing of inflation and potential increases in productivity, others indicate they still consider inflation risks to be critical.
Federal Reserve Governor Bowman stated at an event in Florida last week, "Since the beginning of 2023, we have made considerable progress in reducing inflation, but progress seems to have stalled in recent months," adding that the Federal Reserve "may be closer to a neutral policy stance than we currently believe."
If so, that could mean a reduction in the total number of rate cuts by the Federal Reserve. Since former Republican President Trump won the presidential election on November 5 with a platform of tax cuts, immigration restrictions, and increased tariffs, many investors and economists have become more acutely aware that this possibility really exists.
The impact of these policies, including potentially exacerbated inflation and wage pressures, may also lead the Federal Reserve to adopt a more cautious stance regarding the extent and speed of rate cuts. Investors now expect the Federal Reserve's benchmark interest rate to only fall to around 3.9% next year, not further, which is one percentage point higher than the policymakers' forecast level in September.
Article reposted from: Jinshi Data