The Federal Reserve (Fed) has decided, as expected, to lower its key rates by 25 basis points, to the range of 4.5-4.75%. The central bank has clearly marked the ground since the Jackson Hole meeting at the end of August, even if it surprised market expectations by making an initial cut of 0.5 percentage points in September. And the market consensus expects a second decline of 0.25 percentage points in December, making it a total decline of 1 percentage point in 2024.
However, in the wake of Donald Trump's clear victory in the presidential elections (with a probable majority in Congress), and with macroeconomic figures rather on the rise, the road appears less clear over the coming months in terms of the rate of decline in rate.
Tensions on the bond market
Especially since American long-term rates rose significantly after the election, climbing towards 4.4%. Usually, long rates tend to fall when the Fed lowers its key rates, but the particular context of Donald Trump's return to power could cause the 10-year rate to rise towards 5%, in a scenario similar to what It happened in 2016.
Fed Chairman Jerome Powell, target of recurring criticism of the next president of the United States, will undoubtedly try to be indifferent to politics. Donald Trump clearly questions the independence of the central bank and makes Jerome Powell, whom he appointed, one of his pet peeves (along with Gary Gensler, the head of the SEC, who is very resistant to cryptos). The big financier will have to make do until the end of his mandate in 2026.
The central bank's point of attention will therefore be the strength of the American economy which already exceeds its potential growth (generally estimated at 2%-2.5%), and the good trajectory of inflation. The fact remains that the Fed is convinced that its monetary policy is still restrictive, which leaves a good margin to act and lower its rates again in 2025. Which should please the new president who is due to take office on January 20, 2025.
