The machine is now underway and rates will continue to fall. A cut of a quarter of a percentage point is mostly expected.
The Fed, the American central bank, will meet on Wednesday and Thursday, the day after a very close presidential election, the result of which will probably not yet be known, and its discussions will focus on lowering the institution’s rates.
The machine is, in fact, now underway: rates will continue to fall. A cut of a quarter of a percentage point is widely expected, which will once again bring some flexibility to consumers’ finances.
But it will be in a particular context this week that officials of the powerful Federal Reserve (Fed) will debate and vote, the day after the American presidential election which pits Democrat Kamala Harris against Republican Donald Trump.
The name of the winner will probably not yet be known when central bankers begin their discussions on Wednesday morning. Maybe not when they finish them at midday on Thursday, and Fed Chairman Jerome Powell holds his press conference.
It will be “a difficult press conference to hold so close to such an important national event,” Jill Cetina, professor of finance at Texas A&M University, and former vice-president of the Dallas Fed.
“The Fed will try to articulate its vision of the economy and discern, just like investors, what future policies will be and what they will mean for economic growth,” she stressed.
“Unclear” signal
Washington published a slew of economic indicators last week, which showed a solid economy, but moving away from post-Covid euphoria.
Thus, GDP growth in the third quarter, although still almost twice as strong as that of the euro zone, disappointed, at 2.8% at an annualized rate, compared to 3% in the second quarter.
But it was from employment that the worst surprise came, with in October the lowest number of creations since December 2020 in the United States. This slowdown comes from the hurricanes that hit the country and several strikes, notably at Boeing.
Donald Trump did not fail to denounce “a great embarrassment” for the country, and to accuse his competitor, Kamala Harris, of having “lied for years about the pathetic growth of employment, which has never been real.
Economists, however, call for taking these figures with a grain of salt.
“I wouldn’t draw too strong a signal from this, while the other data indicates that the economy in general is strong,” Jill Cetina put things into perspective.
“At a critical moment, the signal (…) is unfortunately not clear for the Fed nor the markets, given the distortions due to hurricanes Helen and Milton and the Boeing strike,” added Kathy Bostjancic, chief economist for the Nationwide insurance company.
“Progressive recalibration”
However, these figures “suggest that the labor market continues to cool”, she added, specifying that this is in the direction of a reduction in rates of a quarter of a percentage point.
Rates would then fall into the range of 4.50-4.75%. After being at their highest level for more than a year in order to curb inflation, a cut was decided in September, for the first time since March 2020, of half a percentage point directly.
Inflation has evolved in the right direction, falling in September to its lowest level since February 2021, at 2.1% over one year, according to the PCE index, favored by the Fed and published last Thursday.
“Ongoing disinflation and the slowdown in the labor market, as well as strong productivity growth, should favor a gradual recalibration of Fed policy,” said Gregory Daco, chief economist for EY.
He expects a drop of a quarter of a percentage point “at every meeting until June next year”.
The Fed, however, will not update its economic forecasts this week, which will be updated at the next meeting in December.
