The US Federal Reserve will begin its deliberations for the latest monetary policy decisions today, November 6, and will announce its new benchmark interest rate decision on Thursday, November 7. The US central bank will conduct its two-day Federal Open Market Committee (FOMC) meeting amid the high-stakes US Presidential Election results 2024, seen as the “closest race” to the White House for Presidency in the nation's electoral history.
Wall Street experts and economists widely expect the US Fed chair Jerome Powell-led rate-setting panel to reduce the benchmark policy rate again after delivering its first rate cut since 2020 in September 2024. The US federal fund rate currently sits at 4.75 per cent—5 per cent after the rate-setting panel slashed its benchmark rate by 50 basis points (bps) or half a percentage point during the sixth US Fed policy meeting for 2024.
A rate cut could lower borrowing costs, including for mortgages and business loans, giving individuals and companies the incentive to spend and invest. “Fed’s actions will have a direct and swift impact on the economy compared to the potential long-term effects of the election, where legislative changes could take months to unfold,” said Nigel Green, CEO of financial advisory firm deVere Group.
In September, the FOMC voted 11 to 1 to lower the federal funds rate after holding it at over a two-decade high for more than a year. It was the US Fed’s first rate cut after four years. The central bank maintained the key borrowing rate elevated at the 23-year high for 14 consecutive months since July 2023 to combat the worst inflation outbreak in almost 40 years.
In September's policy meeting, US Fed policymakers said they see the interest rate falling by another 50 bps by the end of this year, another full percentage point in 2025, and a final half-point reduction in 2026 to end in a 2.75 per cent-3.00 per cent range. One bps equals one hundredth (1/100) of a percentage point.
In its policy statement, the US Fed policymakers said that the FOMC gained greater confidence that inflation was moving sustainably toward the two per cent target level. It added that “risks to achieving its employment and inflation goals are roughly balanced.”
Before the interest rate freeze, the US Fed had kicked off an aggressive monetary policy tightening cycle by raising the policy rate by 5.25 percentage points since March 2022—in one of the swiftest Fed reactions to rising price pressures that eventually hit a four-decade-high peak.
The US Fed’s rate hikes have helped lower annual inflation from 9.1 per cent in June 2022 to 2.5 per cent. However, high rates have made borrowing costlier for businesses and households. Economists say policymakers must keep rates high enough to defeat rising inflation without derailing the economy.
1.US Inflation
US consumer prices rose slightly more than expected in September amid higher food costs, but the annual increase in inflation was the smallest in more than 3-1/2 years. The consumer price index increased 0.2 per cent in September after gaining 0.2 per cent in August. In the 12 months through September, the CPI rose 2.4 per cent, the smallest year-on-year increase since February 2021 and followed a 2.5 per cent advance in August.
Excluding the volatile food and energy components, the CPI increased 0.3 per cent in September after rising 0.3 per cent in August, pointing to some stickiness in inflation. In the 12 months through September, the core CPI advanced 3.3 per cent after gaining 3.2 per cent gain in August. Economists see the core gauge as a better indicator of underlying inflation and future inflation trends than the overall CPI.
2.US GDP
The US economy grew solidly in the third quarter, with consumer spending increasing at its fastest pace in 1-1/2 years and inflation slowing sharply, continuing to defy recession forecasts. The US gross domestic product (GDP) increased at a 2.8 per cent annualized rate in the third quarter. The world's largest economy grew at a three per cent pace in the April-June quarter.
3.US unemployment rate
US hiring advanced at the slowest pace since 2020 in October, while the unemployment rate held at a low level in a month distorted by severe hurricanes and a major strike. Nonfarm payrolls increased by 12,000 last month, the smallest gain since December 2020. The US economy added 112,000 fewer jobs in August and September than previously reported.
The household survey from which the unemployment rate is derived found that 512,000 people reported they could not work in October, a record high for the month. About 1.4 million people who normally hold full-time positions said they could only work part-time because of the weather. That was also an all-time high for October compared to 129,000 last year.
The unemployment rate was 4.1 per cent, and hourly earnings remained firm in October 2024. Notably, a rise in the US unemployment rate to 4.3 per cent in July from 3.8 per cent in March 2024 was one of the catalysts for the US central bank's supersized 50 bps rate cut in September.
4.US trade deficit
The US trade deficit surged to nearly a 2-1/2-year high in September as businesses boosted imports to meet robust domestic demand and in anticipation of higher tariffs on goods. The trade gap increased 19.2 per cent to $84.4 billion, the highest level since April 2022, from a revised $70.8 billion in August, with exports also falling.
Food imports at $18.8 billion were the highest on record. Capital goods imports increased $2.8 billion to an all-time high. Goods imports advanced four per cent to $285.0 billion, the highest level since March 2022.
If Republican candidate Donald Trump wins the election, he will impose a 60 per cent tariff on Chinese goods and a 10 per cent levy on all other imports. The election outcome could add upside risk to imports if businesses seek to pre-empt potential tariff increases in the event of a second Donald Trump presidency.
5.Crude oil prices
International crude oil prices edged one per cent higher to hit a one-week high on Tuesday ahead of what is expected to be an exceptionally close US presidential election. Brent crude futures were up 73 cents, or one per cent, to $75.81 per barrel, while the US West Texas Intermediate (WTI) crude benchmark rose 78 cents, or 1.1 per cent, to $72.25.
That put Brent on track for its highest close since October 25, and WTI, which was up for the fifth day in a row, was on track for its highest close since October 14. The US dollar slid to a three-week low versus a basket of other currencies as traders squared positions ahead of the US election. A weaker greenback makes oil less expensive in other countries, which can increase demand for the fuel.
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