What can you expect from the US Fed meeting later this week? Here's all you need to know

Global markets are looking ahead to the US Fed's meeting scheduled for Thursday, November 7, 2024, expecting the Jerome Powell-chaired FOMC (Federal Open Market Committee) to slash interest rates further by 0.25%. In September this year, the Fed surprised the markets by cutting interest rates by a massive 0.5%, for the first time in 4 years.

As per the CME Fed Watch Tool, there is now a 98% chance that the Fed will reduce the interest rates by only around 25 basis points, bringing it within the range of 4.5% to 4.75%. Only 2% believe that the Fed might leave the rates unchanged, within their current range of 4.75% to 5%.

No major changes anticipated

However, it is unlikely that this quarter-point rate cut would bring about any significant financial changes in the US economy. The Fed is again expected to bring down the interest rates by another 25 basis points in their December meeting. This would imply a total rate cut of about 50 basis points by the end of this year.

So, why is the Fed not bringing down interest rates by 50 basis points in one fell swoop this time around? Why wait till December to bring down the rates by another 25 basis points? Experts believe that it could stoke inflation, which has seen a sharp decline in the recent past. A steep slash of borrowing rates could accelerate borrowing activity, again pushing up inflation. Per the Fed's recent projections, a total of 4 rate cuts are anticipated in 2025.

On a YoY basis, inflation in the US dipped to 2.4%, close to the Fed's target of 2%. With inflationary pressures reined in, the economy growing at the rate of 2.8% during the third quarter of FY24, and the unemployment rate down to 4.1%, the markets see much merit in bringing interest rates down.

This is especially important to boost spending, particularly in sectors such as housing and automobiles, where even a slight tinkering in interest rates can drastically impact the amount and volume of loans taken to own them.

Data suggests that during Trump's presidency tenure, i.e., between 2017 and 2021, inflation averaged at a rate of 1.9% a year. During the Biden administration, where Kamala Harris served as VP, the inflation is on track to average around 5% a year.

Shrisha Acharya, Vice President, Anand Rathi Global Finance, also notes that the results of the impending US elections, which are likely to be declared today, will also impact the yields and markets.

"The Trump card, coupled with potential Republican control, could mean higher bond yields due to anticipated increases in deficit spending, inflation risks, and potential tax cuts. This could very well jiggle the confidence in U.S. Treasury bonds and thus start a chain effect that will possibly impact global market stability and lead to short-term volatility. On the other hand, Harris’ rise has been met with a stock market rally glued on expectations of economic stability and controlled inflation, with more predictable fiscal policy likely to help in a soft landing," she explains.