"Fed November Rate Cut Outlook"... What Happens If Trump Is Elected?

[US Election 2024]
JPMorgan "Interest Rate Cuts Will Stop If Trump Wins"

On the 5th (local time), ahead of the U.S. presidential election, political uncertainty increased, but major foreign media such as The Wall Street Journal (WSJ) and the Associated Press (AP) reported that the Federal Reserve (Fed) is scheduled to cut interest rates at the Federal Open Market Committee (FOMC) meeting on the 7th.

The market expects the Fed to lower the benchmark interest rate by 0.25 percentage points, marking the second rate cut this year. There is also a high possibility of a 0.25 percentage point cut in December. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected a 98.1% chance that the Fed will cut rates by 0.25 percentage points at the November FOMC.

Former President Donald Trump (left) and Vice President Kamala Harris, candidates for the 2024 U.S. presidential election [Image source=AFP Yonhap News]

Although the October employment data recorded a 'job shock' level, it is analyzed as a temporary effect due to hurricanes and the Boeing strike. However, the U.S. economy showed solid growth of 2.8% in the third quarter, and the unemployment rate remained at 4.1%.

James Bullard, former president of the St. Louis Federal Reserve and current dean of the Purdue University Krannert School of Management, said, "Talks of a recession have now completely disappeared," adding, "This aligns with the Fed's desire to lower policy rates gradually moving forward."

Fed officials see the rate cuts as gradual, but the majority expressed support for additional cuts. Fed Governor Christopher Waller said in a speech on the 14th of last month that future monetary policy should be conducted more cautiously than in September, but "regardless of what happens in the short term, my baseline is still to gradually cut policy rates next year."

Since the Fed FOMC meeting is right after the U.S. presidential election, Fed Chair Jerome Powell is likely to be asked during the press conference about how the election results might affect the economy and inflation. Former Boston Fed President Eric Rosengren said, "If the outcome is uncertain, it is better not to provide guidance." The AP expects Chair Powell to reiterate that the Fed's decisions are not influenced by politics.

However, the AP views that continuous rate cuts would be difficult if former President Donald Trump is elected. Pantheon Macroeconomics stated that since Trump mentioned significant tariff increases, the Fed is more likely to raise rates in response to tariffs and may reduce its rate cut forecasts for 2025. Trump pledged to impose tariffs of up to 20% on imports and 60% on Chinese imports. The Peterson Institute for International Economics projected that if Trump raises tariffs and trading partners impose retaliatory tariffs, U.S. inflation in 2025 could rise by 2 percentage points.

David Kelly, Chief Global Strategist at JP Morgan Asset Management, said that while the Fed is independent, economic trends can be influenced by politics, so the Fed may temporarily halt rate cuts in December due to the impact of Trump’s policies. On the other hand, if Vice President Kamala Harris wins, the Fed is more likely to maintain a path of monetary easing.