BMO:
Powell stressed that the Fed is still aiming to recalibrate policy as rates remain "restrictive". However, it doesn't want to move either too quickly or too slowly, and will strive to stay on "a middle path" toward a more neutral rate. So, the Fed is still planning more rate cuts, but will proceed cautiously and will adjust the pace of decline (either faster or slower) as its confidence in achieving the inflation target changes. Its confidence, in turn, will largely depend on incoming data.
In the September 'dots plot' a slight majority of policymakers leaned toward another 25 bps of cuts by year-end (after today's move). We still lean in this direction too, but much will come down to the next set of inflation and job reports, and perhaps some cooling in overall economic growth
Rabobank:
The clear and swift outcome of the presidential election, which prevented any market turmoil,
allowed the FOMC to make its intended 25 bps rate cut today.
Powell did not give any forward guidance for December, but we expect the FOMC to continue
its cutting cycle in December and January with 25 bps per meeting.
Because we already assumed a Trump victory in our forecasts, we continue to expect a rebound in inflation once he imposes a universal tariff. For the Fed, this will mean that they
will have to pause the cutting cycle. Therefore, we expect no further rate cuts after January.
Powell did not want to address the implications of Republican policies in 2025 on the Fed’s
rate path, but he made clear he would not resign if asked by Trump.
CBA:
FOMC Chair Jerome Powell did not comment on what U.S. President-elect Donald Trump's election win could mean for monetary policy following the Fed's policy meeting. However, we revise forecasts for the FOMC to account for tax cuts and tariffs under Trump's policy platform. Now expect the Fed funds rate to be cut to only 3.75% compared with 3.25% previously
ANZ:
Revising our call for the terminal Fed funds rate 25 basis points to 3.75%, with the Fed set to adopt a slower pace of easing in 2025. Now pencil in one 25 basis point cut in the FFR in each quarter next year until 3Q. After that, the FFR profile flatlines. Given next year's change of U.S. government, will be watching how the economic policy mix changes. Extended tax cuts, deregulation, higher tariffs and addressing immigration will all affect the economy and inflation.
TD Securities:
As widely expected, the Fed has slowed the pace of rate cuts following September's 50 bp move. Today's decision follows recent rhetoric from Fed members who have paid closer attention to the improvement in consumer spending momentum. There was no mention of U.S. election impacts, but our analysis shows that a broad increase in tariffs would lift inflation and force the Fed to slow the rate cutting cycle even further. That said, recent inflation data have been encouraging, with core PCE inflation cooling to 2.3% on a three-month basis.
Market expectations are still leaning towards another 25 bp cut in December (64% chance), which matches what the Fed was projecting in September. Beyond that, there is less certainty, with markets signaling that the Fed would move to a cut-pause-cut pace in 2025. We have already moved to this view, penciling in 25 bp cuts in December and January, before pausing in March. This suggests that the Fed will adopt a more patient approach as economic and political risks become increasingly elevated.
ING:
Previously, the market was expecting the Fed funds rate to bottom somewhere in the 3-3.5% area by next summer. With Donald Trump winning the presidency, his key policy thrusts are extended and expanded, including tax cuts, tariffs, and immigration controls. This may keep the growth story more supported in the near term, but there is likely to be more concern at the Fed about the inflation implications from trade protectionism and labour supply constraints. As such, the market has moved to price a slower, more gradual easing cycle with a slightly higher terminal rate of 3.5-3.75%. We agree with this right now.
Nonetheless, the cooling jobs market remains an important story, while the sharp move higher in longer-dated Treasury yields (80-90bp higher since the Fed cut rates in September) could become a significant headwind for growth. We now forecast the 10Y yield could rise above 5% in 2025 on fiscal sustainability and inflation worries. This will push consumer and corporate borrowing costs and could become a major headwind for growth.
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