In the wake of the November 5 election, the Federal Reserve had its next scheduled meeting.
In September, the Fed cut rates for the first time after a series of rate hikes to address post-pandemic inflation. At the last meeting, the Fed announced a 50 bps cut. This time around, the Fed made an expected 25 bps cut.
Here, Kiplinger experts share the news and our analysis.
The Trump factor and the Fed meeting
While markets are generally expecting the Federal Reserve to reduce its benchmark interest rate by a quarter of a point, Fed Chair Jerome Powell has a new wrinkle to consider: President-elect Donald Trump, along with a Republican Senate and the possibility of a Republican-controlled House of Representatives, too.
Trump campaigned on extending and adding to his signature 2017 tax cut, and he has also talked about imposing steep tariffs on imported goods from China and Mexico. Plus, he says he will order deportations of illegal immigrants once he takes office. Whatever you think of those policies politically, they have the potential to drive up the federal budget deficit or raise costs for certain businesses and consumers, which could add to overall inflation.
Whether Powell suggests that those factors could slow the Fed's future intended interest rate cuts will be a key storyline to watch. Powell will demonstrate his commitment to hard data by cutting tomorrow and not reacting to vague fiscal policy plans. But expectations for the future path of rate cuts are definitely more uncertain now.
- Jim Patterson
Could Trump impact the Fed meeting?
Despite appointing him to the Fed chair position in 2018, Donald Trump has not been Jerome Powell’s biggest cheerleader. During his first presidency, Trump regularly took to Twitter (before he got kicked off in the wake of the Jan. 6 attack and before his new pal Elon Musk took the platform over) to criticize Powell and the Fed, calling it “very weak,” as one tamer example. In fact, Trump tweeted about the Fed 100 times between nominating Powell and the beginning of 2020, according to a Yahoo Finance analysis.
By the end of 2018, Trump was already considering trying to fire Powell. Currently, no president has really tried to fire a Fed chair, and it’s an outstanding question if they have the legal authority to do so.
“The law says that the president can remove a member of the Federal Reserve's Board of Governors, which includes Jay Powell — quote — 'for cause.' And most legal scholars thinks that means the president can't do it just because he doesn't agree with the Fed chairman about policy,” Binyamin Appelbaum told PBS in 2018.
Earlier this year, Trump said he would not reappoint Powell, although in the summer, Trump said he would allow Powell to finish his term, which ends in May 2026.
Meanwhile, Powell has maintained the Fed is apolitical and driven only by what’s right for the American economy. And in any case, Trump won’t be sworn-in until January.
- Alexandra Svokos
Stocks jump post-election, pre-Fed
"Risk appetite returned with gluttonous abandon on Wednesday," Kiplinger senior investing writer Dan Burrows says of how the stock market acted today.
The Dow jumped 1,500 points in reaction to a clear election result — remember, markets hate uncertainty. Some of the biggest wins of the day were seen in financials, with Goldman Sachs (GS) coming away as the Dow's best performer.
"Markets were so busy digesting the outcome of the election they were unable to mount the usual anxiety that precedes meetings of the Federal Open Market Committee (FOMC)," Burrows writes.
Read more here: Stock Market Today: Dow Jumps 1,500 points on Election Outcome
What time is the Fed meeting announcement?
The FOMC meeting started yesterday and will complete today.
You should expect to hear an announcement from the Fed, which will indicate their decisions, at 2 p.m. ET, and Fed Chair Jerome Powell will speak at a press conference at 2:30 p.m. ET.
Mid-morning market update
Stocks are higher in mid-morning trading as investors look ahead to this afternoon's Fed announcement.
At last check, the Nasdaq Composite was leading its peers, up 1.1% as semiconductor stocks climb on positive earnings reactions for Arm Holdings (ARM) and Qualcomm (QCOM). The S&P 500 is 0.5% higher and the Dow Jones Industrial Average has added 0.1%.
- Karee Venema
Questions facing the central bank
Nick Timiraos of The Wall Street Journal is as well-sourced inside the Federal Reserve as any reporter in the country. During Jerome Powell’s tenure as chairman, he’s been called the “Fed whisperer” and “Chairman Timiraos” because of his consistent track record of reporting what the Fed will do before the Fed does it.
In his article previewing today’s interest rate decision by the Federal Open Market Committee (FOMC), Timiraos identified four questions facing the central bank in the aftermath of the election of Donald Trump, the first man in more than 100 years to reclaim the White House for a second term after losing a first reelection bid.
“First,” writes Timiraos, “does the election result lead to meaningful changes for economic demand or inflation that warrant a different policy path?” According to Timiraos, the Fed will wait to see what Trump does with taxes, tariffs and immigration.
Republicans have clinched a majority in the Senate; much depends on control of the House of Representatives. “Staff economists could begin to revise some of their underlying assumptions at the December meeting” if the GOP takes the House as well.
The final three questions Timiraos identifies focus on the job market, inflation and interest rates.
Timiraos notes that since the FOMC last met, concerns about job-market deterioration remain, but “have receded somewhat.” And the impact of weather, strikes and the election “will make it harder for officials to be explicit about their coming plans.”
As for inflation, Timiraos observes that the Personal Consumption Expenditures Price Index (PCE) has been slowing and core inflation has declined since its peak in 2023 — thus why there was an interest rate cut in September. At the same time, Timiraos writes, “Some officials could agitate for a slower pace of cuts if inflation progress appears to stall and the economy is humming along.”
The last question is perhaps the simplest and most complex: “What is the right level for rates, anyway?”
The answer Timiraos provides is that “officials are trying to bring rates back to a more ‘normal’ setting.” The problem Fed officials ultimately face is “they don’t know what constitutes a normal rate.”
- David Dittman
What should homebuyers or sellers do about the Fed?
The housing market has been largely in limbo, crushed between rising home prices and rising mortgage rates. Now that the Fed is cutting rates, both prospective buyers and sellers are crossing their fingers that we’ll reach a point that will unjam the market.
Indeed, since the first rate cut in September, mortgage rates have begun falling, but the market is still fairly stale. Sellers still don’t want to leave their homes because they have good mortgage rates and don’t want to move and get a higher one, and buyers are still scared off by those high mortgage rates. Yes, they’re lower, but they’re still not as low as they’ve been in very recent memory.
Some reports put the “magic mortgage rate number” at anything below 6%. Current average mortgage rates are below 7%, but not by much. The weekly average, per Freddie Mac, for a 30-year fixed-rate mortgage is 6.79%.
If we take the prediction the Fed will make a 25 bps cut today, that’s still not going to get average mortgage rates below 6% in the immediate future.
So what’s a buyer or seller to do? In many cases, it’s a personal decision: Do you have to move? Is it the right time for you? Sometimes the answer has nothing to do with macro factors.
- Alexandra Svokos, senior digital editor, Kiplinger.com
Related content:
- With Mortgage Rates Dipping, Is Now a Good Time to Buy a House?
- How Much It Costs to Refinance a Mortgage and Other Questions to Consider
Financial stocks are pressuring the Dow ahead of the Fed
With roughly 40 minutes to go until the Fed announcement, the stock market is mostly higher.
The Nasdaq continues to lead, up 1.3% at last check, while the S&P 500 has added 0.6%. The Dow is swinging between positive and negative territory, though, pressured by financial stocks that are giving back some of Wednesday's election-inspired gains.
JPMorgan Chase (JPM) is currently the worst Dow Jones stock today, down 4.1%, followed by American Express (AXP) and Goldman Sachs (GS).
- Karee Venema
Fed cuts interest rates by a quarter-percentage point
As expected, the Federal Reserve lowered short-term interest rates by a quarter-percentage point (0.25%).
The Fed's policy-making committee cited improving inflation and moderation in the labor market as reasons for its decision. It did not reference the recent election results, indicating that the Fed plans to focus on hard data and not on expectations on where fiscal policy will go under the incoming Trump administration.
Of course, nearly every question in the 2:30 pm Eastern Time press conference will reference the election results in some way. It will be interesting to see how Fed Chair Jerome Powell chooses to handle these.
- David Payne
Related content:
- Fed Cuts Rates Again: What the Experts Are Saying
- Jobs Growth Stalls Amid Hurricanes and Strikes
- CPI Report Points to Gradual Pace for Rate Cuts
Bond market awaits Powell's presser
There is very little reaction in the bond market so far. It appears markets are waiting to hear a more detailed explanation from Powell during his press conference.
- David Payne
Slight changes to the FOMC policy statement
Changes to the FOMC's latest policy statement include the following:
- Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. (Previously read: Job gains have slowed, and the unemployment rate has moved up but remains low.)
- Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated. (Previously read: Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated.)
- The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. (Previously read: The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.)
- In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. (Previously read: In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.)
- Karee Venema
Powell sticks to script in written statement
Powell stuck to his data-dependent script while reading his written statement. He emphasized that the Fed can respond to changing conditions as needed.
That's been a mantra of his.
Now on to the questions...
- David Payne
Powell takes questions on the election
The first question Powell received was on the election. He said the election will have no near-term impact on the central bank's decisions.
"We don't know what fiscal policy changes will be. We don't guess, speculate, or assume," he added.
- David Payne
Powell talks Treasury yields
Asked whether the rise in Treasury yields since the presidential election is a sign that markets are concerned about higher future inflation, Powell said no. He indicated that the uptick in yields this week is more a reflection of expectations of higher economic growth.
He demurred on giving a firm update on whether the Fed expects to revise its previous outlook for lowering interest rates, but emphasized that there is no reason to think that inflation is not going to continue to trend down.
- David Payne
The pace and magnitude on future rates will depend on data, Powell says
Powell emphasized that the Fed still plans to lower its benchmark rate. But how much and how quickly is not something he's prepared to commit to now, insisting that the Fed will respond to economic data as it comes in, and base its policy accordingly.
"The point is to find the right pace and the right destination" when lowering interest rates, he said, but he would not be pinned down by reporters asking for specifics.
- David Payne
Powell asked about potential tax cuts
Asked about whether a tax cut next year could add to the deficit, fuel inflation and potentially affect the Fed's intentions on reducing interest rates, Powell said that he and his colleagues will wait until something actually comes out of Congress.
If and when President-elect Donald Trump enacts a new tax reform bill, the Fed will factor its effects into its interest rate decisions, he said. But for now, Powell is not worrying about the recent election.
- David Payne
Related content:
Powell says inflation could accelerate in the coming months
Powell noted that there will be "small bumps" in the path to lower inflation, and predicted that inflation readings are likely to perk up in the coming months, because price pressures at the end of 2023 were relatively low. The year-over-year comparisons will make inflation look higher in the final months of 2024.
But Powell indicated that the Fed will look past that, and he expects the monthly inflation numbers to trend lower again early in 2025. That is why the Fed decided to cut its benchmark rate today, Powell said: The overall trend on inflation is down, even if it's not a smooth path lower.
- David Payne
Powell responds to resignation question
Asked if Powell thinks he should resign, based on critical comments made by some advisers to President-elect Trump, Powell had a terse answer: "No." Asked if he thinks he is legally required to resign if the new president asks him to, he was equally succinct: "No."
- Jim Patterson
Powell says the current level of deficit spending is "unsustainable"
Asked if he will follow the precedent set by some of his Fed chair predecessors who criticized U.S. fiscal policy when they thought it was dangerous to the economy, Powell said yes, though he noted explicitly that he is not commenting on the incoming administration's policy proposals.
On the topic of the national debt and the federal government's deficit, he said that the present debt is not large enough relative to the size of the U.S. economy to be dangerous. But he added that the current level of deficit spending is an "unsustainable path" for the growth of the debt.
- David Payne
If you were hoping for a little DE-flation, forget about it!
Responding to the final question of his press conference, Powell said that the Fed would not consider trying to push inflation below its 2% target to compensate for the high inflation of recent years.
So, for consumers who were hoping that prices might flatten out or even drop on average to reverse some of the loss in their spending power, they will be out of luck. Powell warned that letting inflation get too low, or turn into outright deflation, creates new economic risks. 2% inflation is the Fed's target, and Chair Powell is sticking to it.
- David Payne
Treasury yields edged lower during Powell's press conference
It will take a while to see what Wall Street made of Powell's remarks, but the early reaction appeared favorable.
Treasury yields, which have spiked since Tuesday's election, came back down a little while Powell spoke. That may indicate that traders are less concerned now that inflation could flare up again and force the Fed to backtrack on its basic plan for gradually lowering short-term interest rates. Perhaps their takeaway was If Powell isn't worrying, we won't, either.
- Jim Patterson
Stocks end mixed after Fed announcement
The Dow Jones Industrial Average ended Thursday down six-tenths of a point at 43,729, pressured by declining financial stocks. The S&P 500 added 0.7% to 5,973. The tech-heavy Nasdaq Composite rose 1.5% to 19,269.
The yield on the 10-year U.S. Treasury note declined by 9 basis points from Wednesday's close at 4.42%, settling at 4.33% after rising as high as 4.45% intraday.
- David Dittman
Read more: Stock Market Today: Stocks Pause as Investors Assess Fed Policy
