Fed Ready for Rate Cut Despite Election Drama
TLDR
– The Fed plans a quarter-point rate cut next week, aiming to balance inflation control with economic growth.
– Despite weak job growth in October and looming election uncertainty, the Fed remains committed to its gradual rate-cut strategy.
– The upcoming presidential election could impact economic policy, as candidates Trump and Harris have vastly different approaches that could reshape inflation and growth.
– Election night tensions and unclear results may affect the Fed’s decision-making, though it aims to stay focused on stability.
Fed Ready for Rate Cut Despite Election Drama
The Federal Reserve is prepping for a quarter-point rate cut next week, sticking with its plan despite weak job numbers in October and the looming uncertainty of Tuesday’s presidential election. Aiming to bring the federal funds rate down to 4.5-4.75%, the Fed hopes to strike a balance between inflation concerns and economic growth. This shift to a smaller cut follows a more drastic half-point reduction in September.
Keeping the Economy Moving While Avoiding a Slowdown
Even with October’s job report looking a bit sluggish, growth is still on solid ground, bolstered by consumer spending and a resilient job market. U.S. GDP rose 2.8% in the third quarter. Though October saw only 12,000 new jobs—the smallest gain under President Joe Biden—analysts attribute this to recent hurricanes and strikes in the Southeast, with strikes alone wiping 44,000 positions off the payroll count.
Most economists see this as a temporary glitch rather than a long-term issue. The Fed’s goal remains finding a neutral rate that neither overheats nor stalls the economy, targeting inflation at a steady 2%.
A “Gradual” Approach to Rate Cuts
The Fed’s favorite inflation measure, the Personal Consumption Expenditures (PCE) index, showed a September dip to 2.1%, with core PCE—excluding food and energy—still a bit higher at 2.7%. Fed officials lean toward gradual rate cuts rather than drastic moves. Esther George, former Kansas City Fed president, explained, “People have been trying to define ‘gradual.’ Is it every other meeting? Is it every meeting? Right now, it’s code for ‘not 50 [basis points].’”
Election Uncertainty Hangs Over the Fed Decision
Trump’s plan is ambitious and pro-growth, focusing on protectionist trade policies and cutting corporate taxes, aiming to jumpstart American industry and bring more businesses back to the U.S. Analysts suggest that this approach could drive strong economic momentum, potentially lifting growth even further.
Harris, meanwhile, has proposed expanding social programs funded by increased taxes on high earners, which would create a more tempered economic impact.
Much of these plans’ success will hinge on the post-election Congressional landscape. Former Boston Fed President Eric Rosengren pointed out that Fed Chair Jay Powell may prefer to stay flexible, saying, “You don’t want to give guidance if you’re pretty uncertain about what the outcome is going to be.”
Possible Election Night Scenarios Stir Tensions
Trump’s 2024 campaign remains bold, focused on ensuring election integrity and challenging any perceived discrepancies—a continuation of his commitment to the transparency he advocated for in 2020. With mail-in ballots a key factor again, there’s a heightened emphasis on clarity in vote counting, especially if the race is tight.
Legal experts see two main paths if the election results are contested. A Harris win could spark waves of scrutiny around the certification process, while a Trump victory would likely generate interest around the policies he’s planning to implement. Georgetown Law professor Rosa Brooks acknowledged, “This time, Trump won’t be president, the certification process is stronger, and Biden won’t tolerate violence”, underscoring a shift in the atmosphere since 2020.
With close margins expected in swing states, a Harris win could extend the counting process and even trigger recounts, just as in 2020. Trump’s team is already challenging voter eligibility and procedures to ensure everything is above board, indicating that they’re prepared and fully engaged in making sure this election is as fair and transparent as possible.
What’s Next for the Fed’s Rate Strategy?
In the face of election night uncertainty, the Fed is walking a tightrope, hoping to avoid aggressive rate cuts unless inflation surges again. By committing to “gradual” reductions, the Fed leaves room for more cuts if inflation continues to cool. At the same time, this approach keeps the Fed nimble enough to react if prices start to climb again.
As the country braces for the election outcome, Fed officials are set to deliver a modest rate cut, keeping their focus on stability—even when everything else feels uncertain.
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