Fed Cut Rates 25bps Meeting Market Expectations

Yesterday evening, the Federal Reserve met market expectations in cutting rates by a further 25bps. This represented the second cut in the central bank’s present cycle, but marked a more cautious tone to their September meeting which saw the central bank cut 50bps.

The decision to cut 25bps follows the latest US inflation figures indicating that headline inflation (annualised CPI) eased 10bps from August’s figure to 2.4%. This marked the sixth consecutive month where the rate of inflation fell and brought inflation down to its lowest level since February 2021.

Easing inflation also came alongside data suggesting that the heat of the US labour market was cooling, with for example Nonfarm payrolls posting a figure of just 12,000 over October against expectations of 113,000. With this marking the lowest level of job growth since the pandemic (December 2020), markets considered how this would ease the inflationary heat driven by the labour market.

Nevertheless, policy makers continue to remain cautious given robust growth and inflation still above being above target. Such factors will likely come alongside considerations of the impact that the US election could have on the country’s fiscal policy, and in turn inflation.

As we have looked at previously, markets continue to make predictions on the extent to which Trump’s political agenda – which includes tariffs, tax cuts (or a renewal thereof), and deregulation – could feed into inflation. While the Fed made no explicit mention of this, it will no doubt weigh on their minds.

Accordingly, the statement issued by the FOMC said that “Since earlier in the year, labour market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.”

Attention now turns to US inflation figures released next Wednesday, as markets continue to keep a close eye on developments from Capitol Hill.

Yesterday the Bank of England met market expectations in conducting their second rate within the current cycle, bringing their benchmark policy rate down from 5% to 4.75%.

Going into the decision, money markets were implying that there was around a 95% a cut, and the MPC’s decision to do so ultimately carried with eight opting for a cut against Catherine Mann who favoured a hold.

Here, the BoE Monetary Policy Summary reasoned “there has been continued progress in disinflation, particularly as previous external shocks have abated”. Nevertheless, they cautioned that “remaining domestic inflationary pressures are resolving more slowly.”

Commenting on wider economic conditions, Threadneedle Street also telegraphed that the measures announced in the Autumn budget was expected to boost inflation by around 0.5 percentage points at its peak. Relative to their August forecasts, they also raised their GDP projections by 0.75 percentage points. This fed into the policy makers reiterating that “a gradual approach to removing policy restraint remains appropriate”.

Headlines are also being made this morning following the news that President Elect Donald Trump will appoint Susie Wiles as his Chief-of-Staff. Wiles was central to Trump’s victory in Floridia in 2016 ahead of overseeing strategy during Trump’s 2024 election campaign, and will become the first ever female Presidential Chief of Staff.

The position which involves ‘directing, managing and overseeing all policy development, daily operations, and staff activities for the President’ is one of the most senior positions in the US political system, and Trump famously went through four during his first term.

For more on this story, follow the link to Politico below:

Donald Trump picks Susie Wiles to be chief of staff – POLITICO