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8 Nov 2024

Econ Digest

FOMC meeting, November 6-7, 2024: Fed cut its policy rate by 0.25%, as expected; future rate cut may hinge on economic policies and figures

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  • Following the FOMC meeting on November 6-7, 2024, the US Federal Reserve (Fed) unanimously decided to cut the policy rate by 0.25%, from 4.75-5.00% to 4.50-4.75%. This move is aimed at supporting its attempt to achieve maximum employment and a long-term inflation target of 2%, amid an uncertain economic outlook. In addition, the Committee will continue to reduce its holdings of treasury securities, agency debt, and agency mortgage backed securities.
  • The Fed holds the view that the US presidential election results have no short-term effect on the monetary policy direction, and there are currently no concerns that inflation will accelerate as a result of the US presidential election results. However, the phrase “the Committee has gained greater confidence that inflation is moving sustainably toward 2%” was removed from the latest statement. The Fed expects inflation to accelerate for the rest of the year due to a low base in late 2023, but inflation is expected to slow in early 2025 with the overall inflation outlook remaining downward to the Fed’s target.
  • However, markets increasingly expect the Fed to pause rate cuts in the December 2024 meeting. According to the CME FedWatch Tool (as of November 7 at 9:00 a.m. Central Time), the market sees a 29% chance of the Fed holding rates steady at its December 2024 meeting and a 71% chance of a 25 bps rate cut. KResearch views that future rate cuts will primarily depend on economic and inflation data. Close attention must be paid to the US government policies under President Trump as they could potentially drive inflation higher in the coming months.
  • After the FOMC meeting results came out, the US stock market responded positively, with the S&P 500 and Nasdaq reaching new highs, while the Dow Jones remained unchanged from the previous day's closing level after surging more than 1,500 points following the US presidential election results. Meanwhile, the US dollar and US Treasury yields fell slightly after the Fed signaled a rate cut and expressed no concerns about inflationary pressure from the new government's policies.

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