Federal Reserve Decision to be Announced Soon, Market Focuses on Powell's Speech
On January 30th at 3 AM Beijing time, the Federal Reserve's Federal Open Market Committee (FOMC) will announce its first rate decision of 2024, followed by a press conference by Fed Chair Jerome Powell. This marks the first interest rate meeting since Trump returned to the White House. The market generally expects the FOMC to maintain the federal funds rate target range at 4.25%~4.50% in this meeting, and the policy statement may hint at future monetary policy directions.
Marc Giannoni, chief US economist at Barclays, and his team predict that January's statement will not differ significantly from December's, with the FOMC unlikely to provide specific guidance on future rate cuts or balance sheet adjustments. Meanwhile, market traders are closely watching Powell's wording during the press conference to assess potential Fed actions in the second half of 2024.
Trump Pressures Fed to Cut Rates, Wall Street Division Widens
Last week, Trump publicly called for the Fed to cut rates soon, claiming "I know interest rates better than them." Market analysts generally believe that Trump's fiscal policy might conflict with the Fed's monetary policy, leading to more uncertainty in subsequent policy directions.
Currently, the futures market expects the Fed to cut rates once each in June and October, whereas mainstream Wall Street investment banks are sharply divided:
- Deutsche Bank predicts there will be no rate cut in 2024 and may maintain the current rate until 2025. The bank believes Trump's policy might push inflation higher, making it difficult for the Fed to quickly turn to a loose policy.
- UBS forecasts that the Fed will cut rates four times during the year, reducing a total of 100 basis points, arguing that economic growth may slow and policy adjustment demands may increase.
- Goldman Sachs takes a more neutral stance, expecting the Fed to cut rates by 25 basis points each in June and December, ultimately lowering the rate to 3.5%~3.75%.
It's worth noting that in the meeting minutes from last December, Fed officials generally believed that while inflation is trending downward, upward risks remain. Additionally, some policymakers are concerned that Trump's trade and fiscal policies might push inflation higher again, forcing the Fed to remain cautious.
Probability of Fed Rate Hikes in 2024 Rising? Market Opinions Diverge
While market anticipation for Fed rate cuts this year persists, some economists warn that the probability of rate hikes is rising. In the options market linked to the Secured Overnight Financing Rate (SOFR), traders see the likelihood of a Fed rate hike by year-end climbing to 25%.
- Apollo Chief Economist Torsten Sløk predicts a 40% probability of rate hikes, due to the potential for Trump’s policies to increase inflation expectations, forcing the Fed to adopt a stricter policy stance.
- Former New York Fed Economist Phil Suttle also believes the Fed will not cut rates and might even raise rates in September to prevent an inflation rebound.
- Pimco Chief Investment Officer Dan Ivascyn thinks the Fed will maintain a wait-and-see approach in the coming months, not ruling out the possibility of adjusting rate policies when "appropriate."
Currently, the Fed's monetary policy decisions are influenced by multiple factors, including US economic growth momentum, inflation levels, Trump's fiscal policy, changes in trade tariffs, and the global economic environment. If inflation does not continue to decline or if the US economy shows stronger resilience, the Fed may have to reconsider the feasibility of rate cuts.
Federal Reserve's Policy Independence May Face Challenges
With Trump's return to the White House, concerns about the Federal Reserve's independence are rising. Trump has repeatedly criticized the Fed in the past and directly pressured Powell to cut rates during his first term. Now, his re-election may have a greater impact on the Fed's decisions.
- Michael Barr, Vice Chair of Federal Reserve Supervision, announced an early resignation on January 6, and the market speculates Trump may appoint new officials more aligned with his policy preferences, attempting to influence future monetary policy directions.
- JPMorgan's Chief US Economist Michael Feroli points out that Trump might indirectly affect the Fed's decision-making independence through personnel appointments and policy pressure.
Nevertheless, Fed Chair Jerome Powell has repeatedly emphasized that the Fed will not be influenced by political factors and will base policy decisions entirely on economic data and market conditions. During this meeting, Powell may reiterate this stance to stabilize market expectations.
Future Outlook: How Will the Fed Balance Policy Adjustments?
Faced with Trump’s pressure, market expectations for rate cuts, and the risk of a rebound in inflation, the Fed's policy adjustments have become more complex.
- If inflation continues to decline, the Fed may begin a rate cut cycle in the second half of the year, with the rate depending on the extent of economic slowdown.
- If inflation rebounds, potentially due to greater economic stimuli from Trump's policy, the Fed may be forced to maintain high rates or even raise rates to curb price rise pressures.
- If recession risks increase, the Fed may take earlier, more accommodative policies to prevent a significant rise in unemployment rates.
Overall, the Fed's policy trajectory remains significantly uncertain. This interest rate meeting might not bring policy adjustments, but the market will search for signals on future rate directions from the policy statement, Powell's speech, and subsequent economic data. For investors, short-term market volatility might increase, especially in the performance of US bond yields, the US dollar exchange rate, and global stock markets, and close attention to key signals from the Fed is necessary.
