The US Federal Open Market Committee (FOMC) cut the Federal Funds Rate by another 25 bps to 4.50%-4.75% in the November 2024 meeting. In the post-policy press conference, Federal Reserve Chair Jerome Powell indicated that the election won’t affect near-term Fed decisions, as the timing and details of policy changes are still uncertain.

The US economic momentum remains strong, with recent economic data exceeding market expectations. The Republican Party is also expected to pursue pro-growth economic policies, such as lower tax rates and a greater focus on domestic manufacturing. These policies may lead to higher US corporate earnings, increased tariffs on imports into the US, and larger fiscal deficits.

US inflation continues to move gradually towards the 2 per cent target. CPI inflation slowed for the sixth consecutive month to 2.4% in September 2024. However, the new administration’s policies are expected to be inflationary, potentially slowing the disinflation process.

Labour market conditions are gradually easing, as evidenced by moderate job gains and a decline in job openings. The FOMC statement notes that the unemployment rate has increased but remains low.

Yields have risen as markets have significantly lowered their expectations of policy easing, while Treasury supply remains high due to the elevated fiscal deficit. Trump’s policies could further increase the fiscal deficit. In addition, inflationary policies could slow down monetary easing and potentially raise the terminal Fed Funds Rate. Currently, markets anticipate another 75-100 bps of rate cuts by the end of 2025.

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