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 advance before knowing the measures that Donald Trump will implement upon his return to the White House.
This reduction represents a slowdown after the “giant reduction” of half a percentage point in September. 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. Actually, Only three additional rate cuts, of 25 basis points, are now planned over the next 11 months.
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 urgent risks arise “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.
