Widespread anticipation surrounds the upcoming Federal Reserve meeting scheduled for just two days after the U.S. presidential election. Policymakers are widely expected to announce another interest rate cut, marking the second reduction this year as inflation continues to ease.
Economists are predicting the Fed will lower its benchmark interest rate by a quarter-point, bringing it to approximately 4.6%. This follows earlier cuts made earlier this year. A notable shift from the Fed’s previous stance, this decision stems from declining inflation rates, which had peaked last June at 9.1% — the highest seen in four decades — and has since cooled significantly.
The Fed Chair, Jerome Powell, stated the approach is less about stimulating economic growth, which is currently steady, but rather adjusting to what he termed “a recalibration” to align with expected long-term inflation rates. With inflation now reported at 2.4%, slightly above the Fed’s long-term target of 2%, Powell and his colleagues feel there is no need for restrictive borrowing costs. Previously, high rates were maintained due to surging inflation. Now, as inflation stabilizes, Fed economists are hopeful for moderated rates to allow for greater economic flexibility.
Significant speculation looms over how the Fed’s decision and America’s electoral outcomes could interact. Many are questioning how the election of either Donald Trump or Kamala Harris will influence future monetary policies. Trump's potential return to the White House raises concerns about possible economic instability due to proposed high tariffs on imports, among other policies. Economists warn these measures could send inflation spiraling upward yet again, potentially forcing the Fed to reverse its current easing strategy.
Goldman Sachs economists highlight the unpredictable environment created by the tight presidential race between Trump and Harris. They predict at least four more interest rate cuts could occur throughout 2025, assuming the economic conditions remain favorable. Since the Fed sets rates independent of governmental influence, it is wading through both economic indicators and the overarching political uncertainty as it prepares for potential policy changes.
Overall, consumer reactions to the Fed’s measures remain mixed. Many borrowers are yet to see substantial benefits from the previous rate cut implemented back in September. Current market data shows average credit card rates hover around 20.5%, and car loan rates drop only marginally. Consumers, particularly those waiting to benefit from lower borrowing costs, feel the pinch of stagnant borrowing rates.
Despite the easing of credit interest rates, mortgage rates have edged upwards slightly, which contradicts expectations from recent cuts. Many industry analysts, including Ted Rossman from Bankrate.com, suggest these increased rates will remain through 2025 due to investor sentiment and anticipated election outcomes fueling investor caution.
Experts also highlight the potential ripple effects of the election on consumer sentiment. History indicates prolonged uncertainty surrounding elections can negatively affect economic activity, as reported by KPMG economists. They argue delaying investments amid post-election tension may restrain economic growth.
Consequently, uncertainty surrounding the outcome of the election has already begun to affect spending habits, with CEOs expressing hesitance on making significant investments until the electoral results shake out. This dynamic interplay between the election and Federal Reserve policies suggests the upcoming weeks could be filled with market volatility as investors assess the new political environment.
The conclusion of Wednesday’s Fed meeting is sure to generate discussion surrounding monetary strategies going forward, especially as Powell takes the podium to discuss the week’s events and new projections. How the newly elected president and their policies might influence future Fed decisions remains to be seen.
The Federal Reserve’s actions and the election results will undeniably set the tone for economic policy as 2025 approaches, requiring consumers and businesses to remain vigilant as they navigate forthcoming financial landscapes.