United States
As expected, the FOMC cut the Fed funds rate by 25bp, taking it to a range of 4.5% to 4.75%, with no dissenting votes. Chair Powell stated that the Presidential election result will not impact its near-term policy. As such, we expect the Fed to continue executing its cutting cycle over the coming months.
Labor market continues to be front-and-center
The committee made modest changes to its official statement, noting again that risks to its dual mandate are “roughly in balance”.
The Fed remained cognizant of declaring victory too quickly on inflation, stating that inflation has “made progress” to its 2% object, instead of the previous phrasing of “further progress”.
We believe the committee remains concerned about cushioning the labor market from potential deterioration. Chair Powell noted last week’s particularly weak payrolls release, which saw the economy add only 12,000 jobs, less than the 100,000 the market expected and lowest since December 2020 (Figure 1). Albeit he acknowledged the impact of hurricanes Helene and Milton as well as industrial strikes impacted the release. Powell stated the central bank’s policy moves are designed to keep the labor market “in a good place”.
Figure 1: Monthly payrolls were close to zero in October
Source: Bureau of Labor Statistics, Macrobond, Insight, November 2024
The election may not change the near-term outlook for monetary policy
Chair Powell was immediately asked about how the result of the Presidential election may impact the central bank’s monetary easing cycle. He responded, “in the near term, the election will have no effect on our policy decisions” and the “timing and substance” of any policy changes and their “impacts on the economy” are currently unknown and cannot yet factor in the central banks’ models.
While we expect policy uncertainty could impact markets over the near term, as the new administration’s plans around fiscal policy and tariffs crystallize (Figure 2), we expect that changes in the Fed’s monetary policy path over the near term will be unlikely.
Figure 2: Economic uncertainty could play a role as the administration’s economic agenda coalesces
Source: Bureau of Labor Statistics, Macrobond, Insight, November 2024
We expect the easing cycle to continue
We believe the Fed will continue to adjust policy broadly to support the labor market over the coming months. At present, a further rate cut in December and another in Q1 2025 appears to be a sensible base case to us.
