Wall Street Awaits Fed: Rate Cut Likely, Trump’s Influence Uncertain
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Today is a crucial day for global markets, with Wall Street opening in positive territory, continuing the upward trend seen in recent days. The focus is entirely on the Federal Reserve, which is set to announce a decision on interest rates that could mark another step in its monetary easing path. Following the 50 basis point rate cut in September, the market now expects a more modest reduction of 25 basis points, bringing the rate range to 4.50%-4.75%.
The Potential Impact of the Rate Cut According to market expectations, the Fed's committee (FOMC) is likely to take a cautious and gradual approach. Recent economic data suggest that while the U.S. economy is slowing, it remains solid. The third-quarter GDP, although below expectations, did not raise immediate concerns, with growth forecasts staying positive. This has fueled the belief that the Fed will continue with its rate-cutting program, though more moderately than in the past months.
Markets are pricing in a 98% probability of a 25-basis point cut, and now all eyes are on Federal Reserve Chairman Jerome Powell. Investors are eager to hear his statements for clues about the future path of rate cuts. Despite mixed signals from the labor market, which showed a significant slowdown in job creation (with only 12,000 new jobs in October, the lowest figure since December 2020), the expectation is that the Fed will maintain its cautious stance.
Trump's Shadow Over the Fed's Future Decisions
While today's focus is on the rate cut, attention is also turning to the potential influence of the recent U.S. presidential election results on future Federal Reserve decisions. With Donald Trump winning the Republican primaries and a potential return to the White House in 2024, markets are wondering how the former president might impact the central bank's policies in the years to come.
The economic proposals from the Republican Party, particularly those involving massive fiscal expansion and protectionist trade policies, could reignite inflationary pressures, challenging the Fed's current stance. Unlike the Biden administration, which has overseen a slowdown in price growth, a Trump presidency could introduce new inflationary dynamics, which would make it more difficult for the Fed to manage price stability.
Trump’s proposed new tariffs and further restrictions on immigration, both central to his campaign, could increase production costs and consumer prices, complicating the Fed’s task of keeping inflation in check. In such a scenario, the central bank might find itself in a position where it needs to adopt a less "dovish" stance than currently anticipated by the markets.
Potential Conflict Between the Fed and Trump
This is not the first time that Trump’s fiscal and trade policies could clash with the Fed’s monetary policies. During his previous administration, the former president pressured Fed Chairman Powell to lower rates to stimulate the economy. If Trump returns to the White House, it’s likely that the same dynamic will unfold, with Trump possibly attempting to influence the Fed’s decisions to achieve more favorable monetary conditions for economic growth.
Outlook for the Coming Months
Beyond today’s decision, markets are expecting another 25-basis point rate cut in December, with a pause in January and further cuts anticipated through 2025. However, political uncertainties and evolving macroeconomic conditions could make this scenario more complicated. Investors will be closely watching the Fed’s statement and Powell's remarks, searching for signals about the future direction of monetary policy.
In conclusion, while markets are preparing for further short-term monetary easing, long-term challenges may arise from political factors that could alter the Fed’s current trajectory. With Trump gaining ground in the political arena, his fiscal and trade policies could have a significant impact on future decisions by the central bank, keeping uncertainty high over the future path of interest rates in the coming years.
The Potential Impact of the Rate Cut According to market expectations, the Fed's committee (FOMC) is likely to take a cautious and gradual approach. Recent economic data suggest that while the U.S. economy is slowing, it remains solid. The third-quarter GDP, although below expectations, did not raise immediate concerns, with growth forecasts staying positive. This has fueled the belief that the Fed will continue with its rate-cutting program, though more moderately than in the past months.
Markets are pricing in a 98% probability of a 25-basis point cut, and now all eyes are on Federal Reserve Chairman Jerome Powell. Investors are eager to hear his statements for clues about the future path of rate cuts. Despite mixed signals from the labor market, which showed a significant slowdown in job creation (with only 12,000 new jobs in October, the lowest figure since December 2020), the expectation is that the Fed will maintain its cautious stance.
Trump's Shadow Over the Fed's Future Decisions
While today's focus is on the rate cut, attention is also turning to the potential influence of the recent U.S. presidential election results on future Federal Reserve decisions. With Donald Trump winning the Republican primaries and a potential return to the White House in 2024, markets are wondering how the former president might impact the central bank's policies in the years to come.
The economic proposals from the Republican Party, particularly those involving massive fiscal expansion and protectionist trade policies, could reignite inflationary pressures, challenging the Fed's current stance. Unlike the Biden administration, which has overseen a slowdown in price growth, a Trump presidency could introduce new inflationary dynamics, which would make it more difficult for the Fed to manage price stability.
Trump’s proposed new tariffs and further restrictions on immigration, both central to his campaign, could increase production costs and consumer prices, complicating the Fed’s task of keeping inflation in check. In such a scenario, the central bank might find itself in a position where it needs to adopt a less "dovish" stance than currently anticipated by the markets.
Potential Conflict Between the Fed and Trump
This is not the first time that Trump’s fiscal and trade policies could clash with the Fed’s monetary policies. During his previous administration, the former president pressured Fed Chairman Powell to lower rates to stimulate the economy. If Trump returns to the White House, it’s likely that the same dynamic will unfold, with Trump possibly attempting to influence the Fed’s decisions to achieve more favorable monetary conditions for economic growth.
Outlook for the Coming Months
Beyond today’s decision, markets are expecting another 25-basis point rate cut in December, with a pause in January and further cuts anticipated through 2025. However, political uncertainties and evolving macroeconomic conditions could make this scenario more complicated. Investors will be closely watching the Fed’s statement and Powell's remarks, searching for signals about the future direction of monetary policy.
In conclusion, while markets are preparing for further short-term monetary easing, long-term challenges may arise from political factors that could alter the Fed’s current trajectory. With Trump gaining ground in the political arena, his fiscal and trade policies could have a significant impact on future decisions by the central bank, keeping uncertainty high over the future path of interest rates in the coming years.