The positive data arriving from the American economy and the cooling of inflation have consolidated the expectations of operators on a new rate cut this evening by the Federal Reserve at the end of the two-day meeting of the Federal Open Market Committee (FOMC).
It would be the second cut in a year after the half point decision decided in September. Even a Reuters poll conducted at the end of October with 111 economists found that all of the interviewees are convinced that there will be a 25 point cut, with the vast majority (more than 90%) predicting a similar reduction also in December in order to bring the rate of federal funds in a range of 4.25%-4.50% by the end of the year.
The decision of the Bank of England
Even more concrete expectations after the decision of the Bank of England to reduce the interest rate by 0.25 percentage points, to 4.75%, in line with analysts’ expectations. “There has been continued progress in disinflation, particularly as previous external shocks have eased, although remaining domestic inflationary pressures are resolving more slowly,” he said in the Monetary Policy Committee statement after the 8-8 vote. 1 those in favor of the cut.
Focus on Powell’s words
“The decision should reflect theto decrease concerns about inflation e the increase in fears on the labor market – explained Filippo Diodovich, Senior Market Strategist of IG Italia –. The September inflation reading of 2.4% suggests that the Fed’s aggressive tightening cycle and restrictive stance has been effective. For some even too much given that the job market in October showed a very weak figure in job creation: +12 thousandthe lowest value since December 2020.” Diodovich then underlined that the attention of professionals will focus on the statement and on Powell’s words to understand what the path of interest rate cuts will be in the coming months.
The Trump unknown
At least for the moment it seems excluded the possibility that the outcome of the American elections, with the Donald Trump’s victory can influence tonight’s decision. In the long run However, the situation could change, especially if the Republicans keep their promises on an ultra-expansionary fiscal policy and a protectionist trade policy with the introduction of new tariffs. “Such measures should fuel the inflationary pressures complicating the Fed’s work cwhich could be less bullish than what the market expects,” underlined the analyst, adding that it cannot be ruled out that Trump puts pressure on again on the Fed to keep rates very low, as happened during the first presidency.
