Home Insights Macro views November FOMC meeting: A policy rate cut in the face of growing uncertainty

November FOMC meeting: A policy rate cut in the face of growing uncertainty

Market response

November 8, 2024 | 2 min read
Seema Shah
Chief Global Strategist
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The Federal Reserve Open Market Committee (FOMC) continued its policy easing cycle with a 25 basis point rate cut today, lowering the benchmark rate to 4.50%-4.75%. Fed Chair Jerome Powell noted that, in the near term, the election will have no impact on policy decisions, but he did acknowledge that there is a fair amount of uncertainty ahead—both with regards to how much policy easing the economy requires and how President-elect Donald Trump’s future policy decisions will impact the Fed’s dual mandate.

In addition, Powell decisively said that he would not resign if asked to leave by Trump, signalling a determined stance on Fed independence.

Recent developments

Since its surprising decision to cut policy rates by 50 basis points in September, the Fed has had to contend with two major challenges, both of which have led the market to price out some Fed cuts next year:

  1. The economic data in the past six weeks has improved, and inflation data has come in a little hotter than expected. The previously included sentence about having “greater confidence” that inflation is moving sustainably back to the 2% target was notably absent in today’s press statement.
  2. With Donald Trump’s victory in the U.S. Presidential election, there is now the potential for future trade and fiscal policies to impact the growth and inflation path.

The Fed’s take on the economy and election

Unsurprisingly, those two topics dominated the press conference today.

When questioned about the strength of recent data and whether the U.S. economy needs further rate cuts, Chair Powell noted that policy is still restrictive, and policymakers are in the process of lowering rates to the neutral level. But he did not validate the September dot plot projections which had shown a further 100bps of cuts next year. Furthermore, he acknowledged that the Fed is in no hurry to reach neutral, that it is difficult to know exactly where the neutral rate is, and that the Fed could slow the pace of cuts as they approach neutral. In other words, the Fed feels little urgency to cut rates aggressively and must feel its way to neutral cautiously and, increasingly, very gradually.

Chair Powell offered fewer insights as to how the Fed is thinking through the results of the U.S. election, noting several times that he would not be answering anything election related. He did, however, offer these two nuggets: first, the election result will have no bearing on near-term policy decisions, and second, while policy decisions could have an impact on their dual mandate over time, the Fed does not know the timing nor the substance of the policies. “We don't guess, we don't speculate, and we don't assume."

While this is a fair answer, it is important to note that several analysts have said that, if the tariff proposals are fully implemented, there would be a material impact on both inflation and inflation expectations, likely necessitating a Fed response.

Policy outlook

Leaving aside the election result, the recent run of economic data had already raised questions around how much the Fed really needs to cut policy rates next year. Discussions and debate around the level of neutral are likely to dominate the central bank agenda next year.

But even next month’s policy rate decision has had some doubt thrown at it. Indeed, markets have gone from pricing in a near 100% probability of a December rate cut to just around 60% today. Yet, from our perspective, unless the incoming data decisively indicates either renewed inflationary concerns or a re-strengthening labor market, the Fed is still likely to deliver a 25bps cut next month.

Beyond December, the rate path is very uncertain. As well as considerations around the neutral rate, the Fed may have to consider the inflation and growth impact of policy proposals. As it stands, however, investors and the Fed alike still lack clarity on the timing and magnitude of policy proposals, suggesting an extended period of uncertainty around the Fed’s future path for rates.

Interested in more thoughts on how the election might impact markets and portfolios? Check out our 2024 U.S. Presidential election insights hub.

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