The Federal Reserve has lived up to expectations and lowered interest rates another 25 basis points, to 4.50% to 4.75%, in its second cut of this cycle. The central bank has wanted to maintain the roadmap, with a moderate cut that does not reactivate inflation, and not react in advance to Donald Trump’s economic decisions when he returns to the White House. The president of the Fed, Jerome Powell, has been very careful with his words and has avoided promoting any future friction. He has only stressed that he does not plan to resign if the president-elect asks him to, and that the new president does not have the power to dismiss him, if that were his intention, answering a direct question in this regard.
This meeting’s rate cut represents a slowdown after September’s ‘jumbo cut’ of half a percentage point. At that Fed meeting there was already reluctance to carry out such an aggressive rate cut, something that was evident in the publication of the minutes of the meeting and the doubts only increased after verifying that the US economy is still at full capacity. , something that has become evident with the publication of the GDP deflator data for the month of October, and also employment.
The main doubts came from the possibility that the Fed anticipated Trump’s possible inflationary measures, which promises to impose tariffs indiscriminately, reduce taxes and skyrocket public debt, with a stop in rate cuts. The 10-year bond has erased a rate drop in the last month and its profitability is just 15 basis points below the level at which the Fed left rates today, pointing to the fact that the institution will have to stop the cuts very soon or even raise rates again in the medium term. In fact, only 3 more rate cuts, of 25 basis points, are already discounted in the next 11 months.
Powell avoids clash with Trump
In the meeting, Powell avoided clashing with Trump, or assessing the impact that the policies that the new American president has presented in the campaign may have, despite the fact that in the past, during the Republican president’s first term, they already had their differences and the US president was publicly critical of the Fed’s decisions not to lower rates before 2020.
As expected, the president of the Federal Reserve has not wanted to assess the impact of Donald Trump’s arrival to the US presidency. Many economists anticipate increases in inflation due to the new president’s program, but Powell is very clear that “it does not affect our short-term decisions. We do not know what measures will be taken, nor how they will affect the economy. We do not launch into making forecasts, We do not speculate, nor do we reach conclusions,” Powell said.
The president insists that “we will make our decisions meeting by meeting, and we do not have a certain direction.” Therefore, “if measures are taken that affect the economy, we will take them into account, just as we will do with countless other factors.” Thus, Powell wanted to avoid clashing with the new president on the first day after learning the election results and Trump’s victory.
Regarding the drop in inflation, the president of the Fed has warned that they expect there to be some bumps on the road to 2%. For example, they expect core inflation to rise slightly in December, given that last year’s figures were “unsustainably good.” But the important thing is that “the story is clear: we are going to go in the direction of 2% in the next two years. There are going to be bumps along the way, months of better and worse data, but the direction does not change.”
The journalists tried to get a statement about the elections from Powell, but he always avoided making any type of assessment about them, or the impact they may have on the country’s economy. However, the American press managed to release a statement about the perception that citizens have about the economy at this time: “The talks with CEOs of companies and sectors such as banking are quite constructive, about the economy at this time. People She is happy with how the economy is. It is a strong economy. “It is, in fact, remarkable how well the economy has performed and how inflation has moderated.”
The Fed insists on going “meeting by meeting” and will remain flexible
The official statement from the Fed repeats the same message it launched in September, in which it makes it clear that They want to have flexibility to be able to pivot their monetary policy if necessary. “In order to establish the most appropriate monetary policy, the Committee will continue to monitor the implications of the information received on the economic outlook. The Committee will be prepared to adjust its monetary policy position as it deems appropriate, if risks arise that may prevent the Committee’s objectives from being met,” says the Fed.
In addition, he insists that “they will consider a wide range of information, including readings on labor market conditions, inflationary pressures and inflation expectations, as well as developments in financial markets,” he notes.
However, Yes, there has been a change in one of the first paragraphs of the statement, which reflects greater uncertainty on the part of the Fed in order to achieve its 2% objective.. In September, the Fed published at the start of its official statement that “the Committee is increasingly confident that inflation is moving sustainably toward the 2% target,” a reference that has been removed from the meeting message. November.
When the president was asked at a press conference about this change, and why it was due, Powell downplayed this variation, and maintained the message that the Fed will continue to pay attention to the indicators to decide how to recalibrate its policy.
“We believe that even with today’s cut, monetary policy is still restrictive. If you look at our variables, the labor market is balanced, although it is cooling a little. Inflation has been on a good path in the last 2 years and is at a sustained pace towards the 2% objective. “We believe we can maintain the strength of the labor market while making progress toward the 2% inflation target.”Powell explained at the press conference.
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