Consistent with expectations, the US Federal Reserve continued its monetary easing cycle with a 25bp rate cut last night. Fed Chair Jerome Powell addressed concerns surrounding the potential economic impact of President-elect Donald Trump’s proposed policies, which include deporting undocumented immigrants, raising tariffs, and cutting taxes. Powell emphasised that these factors are unlikely to drive any immediate policy shift at the Fed, effectively saying that it would continue to reduce interest rates incrementally as long as such actions do not impede its policy goals.
By easing these concerns, the Fed helped restore some calm to the markets, leading to a softening of the US dollar. Investors remain uncertain about the specifics and timing of President Trump’s policy implementations, but the Fed appears committed to avoiding decisions based on speculation. Instead, it will respond to discernible trends, such as easing inflation and a softening labour market at the moment. Market positioning (as per the Fed funds futures market) for another rate cut at either the December or January policy meetings thus seems sound.