Written by: Revc, Golden Finance
Preface
After Donald Trump won the US presidential election again, the focus of the global financial market has gradually shifted from the election results to Federal Reserve Chairman Jerome Powell and his monetary policy direction. In the upcoming interest rate decision meeting of the Federal Reserve (3 am Beijing time on the 7th), the market generally expects the Federal Reserve to further relax monetary policy and is expected to cut interest rates by 25 basis points to cope with the pressure of slowing US economic growth and weak labor market. However, Trump’s policy proposals have aroused investors’ concerns, especially about how his fiscal policy may affect the Fed’s future decision-making path.
Trump’s policy expectations and Federal Reserve challenges
During his campaign, Trump proposed a series of economic policies, including imposing tariffs on trading partners, deporting illegal immigrants, and corporate tax cuts. If implemented, these measures could increase inflationary pressure and push up the federal deficit, posing greater challenges to the Fed's inflation target and employment stability. Economists believe that the Fed may continue to cut interest rates to support the economy, but Powell may be cautious about the pace of rate cuts to avoid increasing economic uncertainty. Against this backdrop, the market predicts that Powell will avoid political issues at the upcoming press conference, focus on discussing the economic situation, and carefully analyze the new government's economic policies while maintaining neutrality.
Controversy over interest rate path adjustment and the end point of rate cuts
Trump's victory has changed the market's expectations for the future path of interest rates. According to CME's "Fed Watch Tool", investors expect the Fed to continue to cut interest rates in the coming months, and the federal funds rate may fall to 3.75%-4.0% by the end of 2025. Some analysts believe that Trump's fiscal policy will increase inflationary pressures and may force the Fed to accelerate interest rate cuts. But some experts, such as economists at Nomura Securities, predict that the Fed may only cut interest rates once in 2025, with the terminal interest rate remaining at 3.625%. Professor Bill English of the Yale School of Management believes that the Fed may suspend interest rate cuts in the middle of the interest rate cut cycle to assess the response of economic data and provide a buffer for market uncertainties.
Market impact and global attention of Powell’s speech
As the interest rate decision approaches, global investors are looking forward to Powell's assessment of the economic situation and indications on the frequency of interest rate cuts. Whether Powell will indicate that inflation has been gradually brought under control and whether the pace of interest rate cuts will be slowed down in the future has become the focus of the market. CME data shows that some traders believe that interest rate cuts may be suspended next year, and any statement from Powell may directly affect market expectations. In the political environment of Trump's victory, the Federal Reserve's future monetary policy is seen as an important factor affecting economic recovery and global asset prices.
Trump’s policies and potential fluctuations in global capital markets
Trump's economic policies, including tax cuts, increased government spending and the imposition of high tariffs, will affect the Fed's policy path if fully implemented. Economists believe that if inflation rises rapidly due to fiscal expansion, Powell may have to adjust the current monetary policy pace and take more cautious easing measures to stabilize market expectations. This will not only affect domestic bank interest rates, housing loans, savings rates, etc. in the United States, but will also have a profound impact on the global capital market through fluctuations in the US dollar and interest rates. The market expects Powell to gradually slow down interest rate cuts to meet this challenge, and global investors will pay close attention to this.
Crypto market short-term reaction and outlook
Changes in the Fed's policies also have an indirect impact on the cryptocurrency market. Whenever the Fed announces a rate cut or loosens its policies, the returns on traditional assets decline, and some funds may flow into crypto assets such as Bitcoin to hedge risks. If Trump's policies lead to rising inflation, cryptocurrencies may further attract safe-haven funds.
summary
As the US election comes to an end, the Federal Reserve's monetary policy will become a weathervane for the global market. In the current political and economic context, Powell and the Federal Reserve's policy decisions, especially the dynamic adjustments to inflation, interest rate paths and the impact on global capital markets, will continue to guide investors' attention.
