This week, the Federal Reserve is expected to cut interest rates by 25 basis points again at the meeting on November 8, adjusting the benchmark lending rate to the range of 4.75%-5.0% to "recalibrate" the economy. This decision is largely in line with market expectations, given the current backdrop of easing inflation and a weakening labor market. However, the financial markets will focus not only on this rate cut but also on Federal Reserve Chairman Powell's stance on future policy directions, especially how the central bank will respond to policy changes amid Trump's re-election, which is of considerable interest.
According to market forecasts, the Federal Reserve may cut rates quarterly in the future, reducing rates to the target range of 3.75%-4.0% by early 2025. However, economists believe the Federal Reserve faces greater inflationary pressure as Trump might pursue policies like tax cuts and increased spending. If these policies are implemented swiftly, they could push inflation higher again, potentially forcing the Federal Reserve to adjust its rate-cutting pace.
Powell is expected to outline the Federal Reserve's stance during the post-meeting press conference, indicating how it will cautiously respond to economic impacts from new government policies while avoiding political interference. Additionally, there is uncertainty in the markets about whether the Federal Reserve will pause rate cuts in January next year, potentially depending on the timing of policy impacts.
Notably, the ongoing reduction of the Federal Reserve's balance sheet will also be a focal point for the market. Since beginning the balance sheet reduction in June 2022, the Federal Reserve has cut its holdings of treasuries and mortgage-backed securities by approximately $2 trillion. Although the reduction is expected to continue, Wall Street predicts it may cease as early as early 2025. Moving forward, the market will closely watch when the Federal Reserve adjusts the pace of balance sheet reduction to align with future economic conditions.
Overall, while the rate cut decision at this meeting is almost certain, the impact of Trump's policies remains uncertain. Powell's statements and the Federal Reserve's future policy adjustment path will be crucial for investors and market observers.
