It is predicted that on Thursday, the Federal Reserve will make yet another rate cut, signifying a further adjustment in their policies to economic developments. The financial markets expect a cut of 0.25 percentage points; hence, the central bank intends to readjust its position following a decline in inflationary pressure and a softer labor market. It’s expected that the Federal Open Market Committee (FOMC) will cut the rate of banks’ primary lending facility by 25 basis points, thus maintaining the federal funds rate target range in 4.75% – 5.00%.
This is part of the changes that came towards the end of a cycle of rate reductions, which had aimed to strike a balance between promoting growth and keeping inflation in check.
Although a rate cut is the short-term action to be taken, the focus will now centre on the Federal Reserve’s projection of the environment ahead bearing in mind the new political situation that has arisen after the unexpected win of President Donald Trump. This will include how she or he will explain the effects of the new regime’s policies on the economic outlook. In the past, both Powell and other federal officials would strive to be over the politics and made no forecasts on political events.
Referring to several sources, Evercore ISI’s Krishna Guha, in charge of global policy and central banks strategy, says Powell will likely refrain from making any pre-emptive assessments in respect of the policy ideals that would be pursued by the new administration, and their linkages with economic performance or interest rates. Nevertheless, Powell shall further stress that the essence of the Fed is to consider the new administration’s policies and revise its policies based on the new information or inputs.
The rate cut is again part of the more comprehensive policy measures of the central bank to achieve economic balance and stability, but many of the market players will now turn their gaze towards the orientational aspects. According to the market participants, another cut in interest rates is likely in December, and a hold in January, and further cuts in 2025. With uncertainty prevailing in the economic landscape, the next actions that the Fed will take will be very important in determining the growth forecast as well as the inflation forecasts for the years to come.
