The Federal Reserve met expectations and lowered interest rates by another 25 basis points, from 4.50% to 4.75%, in its second cut this cycle. The central bank wanted to maintain the road map, with a moderate decline which does not reactivate inflation, and not to react in anticipation to Donald Trump’s economic decisions upon his return to the White House. Fed Chairman Jerome Powell was very careful in his comments and avoided fostering future friction. He only stressed that he did not plan to resign if the president-elect asked him to do so, and that the new president does not have the power to remove him, if that was his intention, responding to a direct question about it.
The rate cut announced at this meeting represents a slowdown after September’s “giant cut” of half a percentage point. At this Fed meeting, there was already reluctance to proceed with such an aggressive rate cut, which was evident in the release of the meeting minutes and the doubts only increased after verified that the American economy was still at full capacity, which was already the case. became evident with the release of GDP deflator data for the month of October, as well as employment.
The main doubts stemmed from the possibility that the Fed had anticipated the possible inflationary measures of Trump, who promises to impose tariffs indiscriminately, to cut taxes and to skyrocket the public debt, with a halt to the reductions rate. The 10-year bond erased a rate cut last month and its profitability is only 15 basis points below where the Fed left rates today, underscoring the fact that the institution will have to stop the cuts very soon, or even increase rates again in the medium term. In fact, only 3 additional rate cuts, of 25 basis points, are already expected over the next 11 months..
Powell avoids clash with Trump
During the meeting, Powell avoided clashing with Trump, nor assessing the impact that the policies that the new US president presented during the campaign could have, even if in the past, during the first term of the Republican president , they already had differences. and the US president publicly criticized the Fed’s decisions not to cut rates before 2020.
As expected, the chairman of the Federal Reserve did not want to assess the impact of Donald Trump’s arrival as US president. Many economists anticipate an increase in inflation due to the new president’s agenda, but Powell is very clear that “this does not affect our short-term decisions.” We do not know what measures will be taken, or how they will affect the economy. We do not engage in predictions. We do not speculate or reach conclusions,” Powell said.
The president insists that “we will make our decisions meeting by meeting, and we do not have specific direction.” Therefore, “if measures are taken that affect the economy, we will take them into account, just as we will countless other factors.” So, Powell wanted to avoid clashing with the new president on the first day after learning of the election results and Trump’s victory.
Regarding the decline in inflation, the Fed chairman warned that he expects some obstacles on the road to 2%. For example, they expect core inflation to rise slightly in December, given that last year’s numbers were “unsustainably good.” But what is important is that “the story is clear: we are going to move in the direction of 2% over the next two years. There will be bumps along the way, months of better and worse data, but the direction isn’t changing. don’t change.”
Reporters tried to get a statement from Powell on the elections, but he consistently avoided making any assessment about them or the impact they might have on the country’s economy. However, the American press managed to publish a statement on citizens’ perception of the economy at the moment: “Discussions with CEOs of companies and sectors like banking are quite constructive, on the economy Right now. People are happy. with the way the economy is. It’s a strong economy. “It’s actually remarkable how well the economy has performed and how much inflation has moderated.”
The Fed insists on proceeding “meeting by meeting” and will remain flexible
The official statement from the Fed repeats the same message launched in September, in which it clearly indicates that They want to have the flexibility to be able to pivot their monetary policy if necessary. “In order to establish the most appropriate monetary policy, the Committee will continue to monitor the implications of the information received on the economic outlook. The Committee will be prepared to adjust its monetary policy position as it deems appropriate, if risks arise that could prevent the Committee’s objectives from being achieved,” the Fed asserts.
Furthermore, he insists that “they will take into account a wide range of information, including readings on labor market conditions, inflationary pressures and inflation expectations, as well as market developments financial,” he notes.
However, Yes, there was a change in one of the first paragraphs of the statement, which reflects greater uncertainty on the part of the Fed in reaching its 2% target.. In September, the Fed issued at the start of its official statement that “the committee is increasingly confident that inflation is moving sustainably toward the 2% target,” a reference that was removed from the message. the November meeting.
When the president was asked at a news conference about this change and why it was due, Powell downplayed the variation and maintained the message that the Fed will continue to pay attention to indicators to decide how to recalibrate policy.
“We think that even with today’s reduction, monetary policy remains restrictive. If you look at our variables, the labor market is balanced, even if it is cooling a little. Inflation has been on a good track over the past two years and is at a steady pace towards the 2% target. “We believe we can maintain strength in the labor market while making progress toward the 2% inflation goal.”Powell explained during the press conference.
