The Federal Reserve is set to meet amid uncertain presidential election results, with expectations for a quarter-point interest rate cut to provide consumer relief. Recent economic data shows a slowing economy, with disappointing job growth and a GDP decline to 2.8%. Experts advise caution, suggesting that external factors may distort the economic outlook. Inflation has decreased to 2.1%, and the Fed may continue to reduce rates gradually over the coming months, pending further assessment in December.
Federal Reserve’s Upcoming Meeting: A Crucial Decision Day
The Federal Reserve (Fed), the central banking system of the United States, is set to convene on Wednesday and Thursday, coinciding with the aftermath of a tightly contested presidential election. As the results may still be pending, the Fed’s agenda will likely revolve around potential interest rate cuts. The trend of decreasing rates appears to be underway, with a quarter-point reduction widely anticipated, which would provide some financial relief to consumers.
This meeting unfolds under a unique backdrop: the election battle between Democrat Kamala Harris and Republican Donald Trump. As discussions commence on Wednesday morning, the identity of the election winner might still be undetermined. Even the subsequent press conference led by Fed Chairman Jerome Powell on Thursday may occur without clarity on the election results.
Economic Indicators and Their Implications
Recent economic data released from Washington has painted a complicated picture of the U.S. economy. While growth remains robust, it is showing signs of deceleration from the post-COVID excitement. The GDP growth for the third quarter registered a disappointing 2.8% annualized rate, a slight decline from 3% in the previous quarter.
Moreover, the employment report for October revealed the lowest job creation figures since December 2020, attributed to disruptions caused by hurricanes and strikes, particularly at Boeing. Trump has criticized this as a significant setback, accusing Harris of misrepresenting job growth statistics.
Nevertheless, experts urge a cautious approach to these numbers. Jill Cetina, a finance professor, advised against overreacting to the employment data, indicating that other indicators still suggest a resilient economy. Kathy Bostjancic, chief economist for Nationwide, echoed this sentiment, noting that the current economic signals are muddled due to external factors like natural disasters and industry strikes.
As these economic signals point towards a cooling labor market, they align with expectations for a quarter-point rate cut, bringing rates into the range of 4.50-4.75%. After a prolonged period of high rates aimed at curbing inflation, the Fed initiated a cut in September, marking the first decrease since March 2020.
Inflation is trending positively, having dropped to its lowest level since February 2021 at 2.1% year-on-year, according to the PCE index. Gregory Daco, chief economist for EY, believes that the combination of ongoing disinflation and a softening labor market will lead to a gradual adjustment in Fed policy. He anticipates a quarter-point cut at each meeting until June of the following year, although the Fed will hold off on updating its economic forecasts until December’s meeting.