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Fed Cuts Rates, But Holds Back on Election Comments
With a rate cut in place, Fed Chair Jay Powell chose to sidestep election topics, keeping attention on monetary policy.
- Markets & Economy
- Central Banks
- Monetary Policy
- Federal Reserve
Key Points
What it is
In its November meeting, the Fed lowered interest rates by a quarter point and clarified its approach to policy while steering clear of election discussions.
Why it matters
The Fed’s focus on core economic metrics suggests a commitment to adapting policy as fiscal changes emerge, providing a steady framework amid fluctuating conditions.
Where it's going
In the coming months, the Fed will likely take a measured approach, making adjustments based on emerging data and evolving market trends.
With the widely expected 25-basis-point rate cut by the Fed in November and the U.S. election results still fresh, reporters at Fed Chair Jay Powell’s latest press conference tried mightily to get him to comment on the policies of the incoming Administration. He didn’t take the bait. Instead, he used the opportunity to clarify how fiscal policy decisions (set by the Administration and Congress) affect the Fed’s monetary policy decisions. Let’s take a closer look.
Chair Powell emphasized that he does not comment on fiscal policy or election results. He did offer, however, that the election will have no near-term effects on monetary policy. Powell noted what we often discuss with our clients: the many layers of uncertainty around the new policies of any incoming Administration. Specifically, he said the Fed doesn’t know yet the “timing,” “substance,” or “whether and to what extent” any new policies will “matter for the achievement” of the Fed’s “maximum employment and price stability goals.” Until more is clear, he said the Fed wouldn’t “guess,” “speculate” or “assume” anything.
Powell explained that as the new administration’s policies start taking shape, the Fed would follow “regular order,” meaning it would follow the same practice it has used to assess the economic effects of the policies of previous Administrations. However, he added that fiscal policy is only one among “countless other factors” the Fed considers when assessing the outlook for inflation and economic activity.
Speaking more generally about the economic outlook, Powell said that there is still “a fair amount of uncertainty,” and that this is not “a good time to be doing a lot of forward guidance.” He went on to say that “you don’t want to tie yourself up with guidance. You want to be able to make sensible decisions as you go.” He clarified later that this uncertainty isn’t specifically about “the new administration’s policies.” We can’t help but think, however, that fiscal policy will be one of the “countless factors” that will help shape the path of monetary policy for next year and beyond.
Main Point
Fed Prioritizes Economic Data, Skips Election Commentary
With the Fed’s latest rate cut of a quarter point, Chair Powell set aside comments on the election outcome, focusing instead on core economic indicators. He highlighted that adjustments will be made as fiscal dynamics unfold, emphasizing flexibility over forecasts.
Antulio N. Bomfim
Head of Global Macro – Global Fixed Income
Antulio Bomfim, head of global macro for the global fixed income team, oversees interest rate strategy, systematic volatility, liquidity and monitoring of systemic risk globally. He is also responsible for the firm’s global liquidity management business.
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