Fed Cuts Rates to 4.5% as Trump Secures Presidency

Introduction

The US Federal Reserve cut its benchmark rate by 0.25%, bringing it to a target range of 4.50%-4.75% following a two-day Federal Open Market Committee (FOMC) meeting. This decision, the seventh policy shift in 2024, reflects the Fed's commitment to supporting economic stability amid cooling inflation and robust growth. 

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1. Fed Lowers Rates Post-Election, Ignoring Political Pressures

Despite potential concerns about the implications of Donald Trump’s presidential victory, the Fed moved forward with a quarter-point rate cut. Chair Jerome Powell confirmed that political changes wouldn’t impact monetary policy in the immediate term, stating, “We don’t guess, we don’t speculate, and we don’t assume.” This cut is expected to ease costs for consumer loans, like mortgages, while broader economic factors will shape the long-term impact.

2. Powell Pledges Stability Amid Presidential Criticism

Fed Chair Jerome Powell assured the public he would complete his term until 2026, even amid prior critiques from Trump’s campaign. Powell emphasized the Fed’s independence, noting that governors cannot be removed by the president without cause. This stance is critical in preserving the Fed’s credibility and autonomy, as Trump has expressed interest in influencing rate policies directly.

3. Gradual Rate Cuts Expected as Fed Watches Economic Signals

Powell indicated confidence in the economy but emphasized a cautious approach to further cuts. While the Fed’s baseline is to ease rates gradually toward a “neutral” level, future adjustments will depend on economic data. “We’re trying to find neutral carefully, patiently,” Powell stated, underscoring a balanced strategy to sustain growth without triggering inflation.

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4. Fed Moderates Balance-Sheet Runoff Pace

The Fed plans to slow its balance-sheet reduction, decreasing monthly Treasury securities runoff to $25 billion from $60 billion starting June 2024. This adjustment is intended to maintain liquidity and support financial conditions, reflecting the Fed’s intention to stabilize markets without excessive intervention.

5. Wall Street Rallies to New Highs Post-Fed Decision

Wall Street responded strongly to the Fed’s rate cut, with the S&P 500 and Nasdaq reaching record highs. Led by gains in tech stocks, the Nasdaq climbed 1.5% to 19,269.46, while the S&P 500 rose 0.7% to 5,973.10. 

The Fed’s second consecutive rate cut illustrates a careful approach to maintaining economic momentum while addressing inflation, balancing market reactions with the need for policy stability amid a new political landscape.

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