It’s over—it’s finally over. Now that the presidential election has been called, the anticipated quarter-point Fed Interest Rates cut is the next big event this week.
The Fed’s upcoming decision on Thursday aims to stimulate growth while not reigniting inflation. Here’s how they plan to do that.
Election Adds Uncertainty to Interest Rate Cuts
Don't forget to turn your clocks back to 2% interest rates and $1.80 gas tomorrow!
— Jordan Rachel (@TheJordanRachel) November 5, 2024
The Federal Open Market Committee’s anticipated decision to lower the federal funds rate to 4.5-4.75% comes against the backdrop of mixed economic indicators and political unpredictability.
Despite a distorted jobs report and the newly announced 57th president Donald J. Trump, the Fed aims to continue its gradual easing approach. Former Boston Fed President Eric Rosengren noted the strategic timing in a press conference, stating, “You still have a federal funds rate in real terms that is quite high and they don’t want to slow down the economy overly, so it makes sense to continue to decrease it unless conditions change gradually.”
The U.S. economy has demonstrated resilience, buoyed by robust consumer spending and a healthy labor market, even as inflation moderates.
The third quarter’s GDP peaked by 2.8%, a steady climb, though it lags behind earlier momentum. October job additions were a mere 12,000, disrupted by storms and strikes, Boeing being a headline act. Still, optimism prevails, as former St. Louis Fed boss James Bullard assures us the recession narrative is now defunct.
(Amen to that!)
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Balancing Inflation and Growth
The Fed’s primary concern remains achieving its inflation target of 2%. The personal consumption expenditures price index, a key measure of inflation, fell to 2.1% in September.
Yet the core inflation rate, excluding food and energy prices, remains at 2.7%. Former Kansas City Fed president Esther George warns that while inflation rates have decreased, “the upside risks to me look like they are becoming more noticeable.” The Fed’s gradual approach aims to align interest rates with a neutral level that neither stifles growth nor fuels inflation.
The American people gave a mandate to Donald Trump last night:
Get inflation under control, make homes more affordable, secure the border, cut taxes, don’t engage in new wars, stop the woke nonsense, and make America healthy again.
— Anthony Pompliano
(@APompliano) November 6, 2024
Economists, led by Seth Carpenter from Morgan Stanley, are still betting on a quarter-point Fed rate cut, potentially more, until stabilizing just above neutral at 3.25%. Carpenter flags inflation as the prime concern, implying that job figures will be key in shaping future rate moves if inflation fears linger.
With Trump confirmed to take the White House in January and a dovish Fed on the way, crypto will likely have a strong rally to end the year.
You got your wish if you wanted a Santa Claus rally for Christmas. That said, as the Fed prepares for a critical decision amid Trump’s victory, the focus remains on balancing inflation control with sustaining economic growth. We’ll keep you updated as they try to achieve that.
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