Federal Reserve Related Situation
Last week's Federal Reserve meeting officially confirmed a long-standing market expectation shift, particularly regarding future interest rate cuts, with the Fed anticipating only two rate cuts next year. At the same time, it raised its forecast for overall inflation levels. Some analysts even warned that if the incoming Trump administration does not temper its radical economic policy proposals, the market could face greater uncertainty, and the risk of interest rate hikes could resurface. Trump's policies include campaign promises in areas such as taxes, tariffs, and immigration, which could represent significant variables for the economic outlook, thereby suppressing the previously expected easing sentiment in the market. Some investors have begun to worry that if Trump's policies lead to an overheating U.S. economy or rising inflation, the Fed might even shift towards raising interest rates.
Meanwhile, the U.S. third-quarter GDP data shows that the U.S. economic growth rate reached 3.1%, far exceeding the expected 2.8%. This gap indicates that economic performance surpassed market expectations. GDP, as an important indicator of the total value of all goods and services produced by a country in a specific time frame, indicates that the U.S. economy continues to expand steadily, occurring in the context of the current high interest rate environment, demonstrating strong economic resilience. Of course, for financial markets, better-than-expected GDP data is not entirely positive, as it also implies that the Fed may no longer consider lowering interest rates.
Additionally, regarding the core PCE data, which I did not report last week, it indeed provides a relatively different perspective. The market previously expected it to rise slightly from last month's 2.8% to 2.9%, but actual data showed it remained at 2.8%, below market expectations. This data releases a positive signal, indicating that inflation pressures are easing and providing more flexibility for the Fed's future policy adjustments. If inflation can further fall back to the target level of 2%, it might change the Fed's pace of rate cuts.