07 November 2024
If you are covering the Federal Reserve's latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“While today’s 0.25% interest rate cut by the Federal Reserve had been widely expected, the pace of any future cuts is looking considerably less certain. The market is currently pricing in three or four more quarter point rate cuts over the coming year, as core PCE inflation has been flat at 2.7% for the past three months even as the headline rate has fallen closer to target at 2.1%. Volatile data from the jobs market has clouded the outlook, and so too has Donald Trump’s win.
“A very strong jobs report in September was followed by a particularly weak one in October, when figures were heavily impacted by a combination of hurricanes and strike action. The Fed began its rate-cutting cycle due to concerns about rising unemployment and the expectation that this trend might continue. However, no clear pattern has emerged since then.
“The Fed’s monetary policy committee will be acutely aware that Donald Trump’s policies could be significantly inflationary, primarily due to the impact of tariffs being passed on to consumers while lower taxes heat up the economy. Investors will no doubt be combing through their comments carefully for any perceived guidance on how that might impact the path of interest rates going forward.
“Despite the widely anticipated rate cut, long term Treasury yields have already moved from recent lows of 3.6% in September to 4.39% currently. This has been fuelled by investors weighing the risks of a more persistent level of inflation, alongside a seemingly resilient economy and the potential impact of Trump’s policies. Donald Trump’s aggressive spending plans are projected by the Congressional Budget Office to increase US debt to GDP from 100% currently up to 143% by 2034.
“On both sides of the pond, we are seeing expectations for future rate cuts being scaled back considerably compared to what many had originally hoped for. In the UK, it is looking increasingly likely that rates will no longer fall below 4% in 2025, and in the US it seems interest rates will stay higher for longer as the Fed will need to tread very carefully until it is better able to assess the true impact of Trump’s plans.”
