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1 Nov 2024

Econ Digest

FOMC meeting, November 6-7, 2024: Fed is expected to cut its policy rate by 0.25%; US presidential election results to influence future policy rate moves

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         At the upcoming FOMC meeting slated for November 6-7, 2024, the US Federal Reserve (Fed) is expected to cut its policy rate by 0.25% to a range of 4.50-4.75%, in line with market expectations. This adjustment is driven by:

•    US inflation is moving closer to the Fed’s target. Headline inflation, based on the Personal Consumption Expenditures (PCE) price index – the Fed’s preferred inflation gauge – fell to 2.1%YoY in September 2024, nearly reaching the Fed’s 2.0% target.
•    The US economy is heading for a “soft landing” amid a gradual slowdown in the labor market and continued growth in retail sales. Given this, the Fed is not expected to make an aggressive 0.5% rate cut at the upcoming meeting, as it did in the September meeting.
        
         KResearch holds the view that the Fed is likely to trim its policy rate by another 0.25% in December 2024, bringing the rate down to 4.25-4.50% by year-end, as largely expected by the market.

         However, the future direction of US monetary policy remains highly uncertain, primarily dependent on incoming economic data and inflation figures, as well as the results of the US presidential election on November 5, 2024. If Donald Trump wins the election and the Republicans secure a majority in both the Senate and the House of Representatives (Republican sweep), there is a risk of accelerated US inflation due to measures such as tariff hikes and restrictions on migrant workers. This might limit the Fed’s ability to ease monetary policy as expected, especially in 2025, amid persistent inflationary pressure. In September 2024, core inflation – measured by the core PCE price index – remained steady at 2.7%. According to the CME FedWatch Tool data as of November 1, 2024, the Fed is likely to reduce its policy rate by around 0.75%, bringing the rate down to 3.50-3.75% by the end of 2025, as largely expected by the market, and slightly higher than the Fed’s latest Dot Plot projection of 3.25-3.50%.

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