Fed Cuts Rates Again Amid Rising Concerns on Inflation and Trump Policies
November 8, 2024 - The Federal Reserve has once again lowered the federal funds rate, marking the second rate cut in recent months. With economic policy changes anticipated under President-elect Donald Trump, many experts are worried about potential inflation risks and the Fed's future direction on interest rates.
Key Points from the Federal Reserve’s Decision
The Federal Open Market Committee (FOMC) concluded a two-day meeting with an announcement that the federal funds rate would be reduced by 25 basis points to a range of 4.5% to 4.75%, the lowest level since early 2023. This move follows a 50-basis-point cut in September and comes amidst a climate of economic uncertainty.
- Second Rate Cut: The Fed has lowered the rate by 25 basis points, moving it to 4.5% to 4.75%.
- Market Anticipation: Market analysts expected this cut, with a 99% probability based on CME Group’s FedWatch Tool.
- Powell’s Independence: Fed Chair Jerome Powell stated he wouldn’t step down if Trump requested, emphasizing Fed independence.
Potential Impact of Trump’s Policies on the Fed
"The Fed is going to be even more important in 2025 than it is today, if you could possibly imagine that," commented Siebert chief investment officer Mark Malek.
With Trump set to take office, economists foresee potential disruptions ahead. JPMorgan Chase’s Michael Feroli noted that Trump’s uncertain policies could slow the Fed’s rate-cutting trajectory, estimating a gradual reduction to 3.5%. Meanwhile, Bank of America warned that new tariffs from Trump could curb further rate cuts, given tariffs’ inflationary effects.
Current Economic Outlook and Future Rate Predictions
Despite October’s anticipated cut, the broader economic landscape remains complex. Deutsche Bank’s Matthew Luzzetti projects that the Fed-determined interest rate will end 2025 between 4% and 4.5%, mainly due to anticipated inflation pressures under the new administration’s policies.
Background: Fed’s Recent Rate Actions and Market Reactions
The Federal Reserve’s approach over recent years has been marked by rapid shifts, from near-zero rates during the pandemic to a series of hikes to combat inflation. Lower interest rates typically aim to stimulate borrowing and economic activity, but recent government bond yield movements hint at concerns over inflationary impacts tied to Trump’s policies, adding a layer of uncertainty.
Unexpected Rise in Mortgage Rates
Despite the Fed’s rate cuts, mortgage rates have climbed to a three-month high of 6.79% this week. This increase reflects investor concerns over potential inflation and tightening lending conditions, especially with the rise in 10-year Treasury yields.
Economic Implications and Voter Perspectives
As the economy faces potential changes under Trump’s presidency, this latest rate cut raises key questions for both the Fed and voters. Economic indicators reflect resilience but also suggest caution as the nation prepares for a pivotal year. CityJobs.info will continue providing updates on the evolving economic landscape.
Source: Forbes - Derek Saul
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