Fed Cuts Rates, December Open for Debate — Evening Brief – 11.07.24
The Federal Open Market Committee lowered the federal funds rate a quarter-point on Thursday to a target range of 4.50% to 4.75%, as widely expected, in response to a softening labor market and steady advancements in controlling inflation.
The quarter-point reduction follows the Federal Reserve’s aggressive half-point rate decrease at their prior meeting in September. Following that meeting, numerous policymakers have underscored that reductions of half a percentage point would not be standard, indicating that the rate of easing should be “gradual.”
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” the FOMC statement read. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
In the aftermath of president-elect Donald Trump’s victory, inquiries regarding the trajectory of the U.S. economy have intensified. Numerous economic evaluations indicate that Trump’s policies may result in adverse economic consequences, such as heightened inflation, more unemployment, decreased GDP, substantial increase of federal debt, expedited bankruptcy of Social Security, and elevated tax rates for most Americans.
Goldman Sachs economists anticipate that Trump’s suggested 10% tariff, along with his proposed tariffs on Chinese imports and Mexican automobiles, may elevate inflation to approximately 2.75% to 3% by mid-2026.
“In the near term, the election will have no effects on our policy decisions,” Fed Chair Jay Powell said in his post-meeting press conference.
The current probability of another quarter-point rate cut in December is now 71%, compared with 78% before the press conference, according to the CME FedWatch tool. Nevertheless, some strategists have questioned that conviction. Bryan Jordan, Cycle Framework Insights, Inc chief strategist, told Connect that the improvements in job growth, consumer confidence, consumption spending, and an uptick in long-term inflation expectations may prompt a December pause.
Longer-term, however, Jordan anticipates the rate-cutting cycle will resume in 2025, as the labor market continues to downshift, and inflation continues to recede.
“We‘re on a path to a more neutral stance” on interest rates, Powell said. “That has not changed at all since September.”