Financial markets are anticipating a near-certain reduction in U.S. interest rates as the Federal Open Market Committee (FOMC), the policy-making arm of the Federal Reserve, is expected to cut its benchmark borrowing rate by 25 basis points today. This move aims to “recalibrate” monetary policy in response to an economy characterized by low inflation and a weakening job market.
Chair Jerome Powell and his fellow committee members will be navigating a complex economic landscape, compounded by the political upheaval following Donald Trump’s unexpected victory in the presidential election. As they implement this rate cut, attention will quickly shift to their outlook for future monetary policy.
During his first term from 2017 to 2021, Trump was a vocal critic of Powell and the Fed, often advocating for lower interest rates to stimulate economic growth. Consequently, market participants will likely be keenly focused on any guidance Powell provides regarding future rate adjustments, even as the immediate action is set to align with current economic conditions.
The Fed funds rate currently sits between 4.75% and 5.0%, influencing what banks charge each other for overnight loans and ultimately impacting consumer borrowing costs. Market expectations suggest another quarter-point cut could follow in December, with a pause in January and additional reductions projected through 2025.
Since June 2022, the Federal Reserve has reduced its holdings in Treasuries and mortgage-backed securities by approximately $2 trillion. While Wall Street anticipates that this balance sheet runoff may come to a halt as early as 2025, Fed officials have indicated that they may continue this reduction even while lowering interest rates.
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