As the U.S. presidential election approaches on November 5, 2024, all eyes are on the Federal Reserve, which is expected to cut interest rates for the second time this year. A quarter-point reduction is anticipated during its two-day meeting starting November 6, 2024, bringing rates down to approximately 4.6% from earlier levels [1dd7e4f7]. This follows a half-point cut in September, indicating a significant shift in monetary policy as the Fed aims to recalibrate to a lower-inflation environment [1dd7e4f7].
This decision comes amidst a tightly contested race between Democratic Vice President Kamala Harris and Republican former President Donald Trump, with recent polls indicating a dead heat ahead of Election Day [4a7fae1c]. While economists believe the current rate cut is not directly influenced by the presidential election, future cuts may be affected depending on the election outcome [1dd7e4f7]. Tara Sinclair, an economics professor, expressed concerns regarding the independence of the Fed, especially in light of Trump's previous threats to exert control over it [1dd7e4f7].
Analysts predict that the Fed's key lending rate will drop to a target range of 4.50 to 4.75 percent, with futures traders assigning a 99% probability to this rate cut [4a7fae1c]. The implications of these rate cuts extend beyond U.S. borders, impacting global financial markets. The Bank of England is likely to reduce its rates to 4.75%, while the Riksbank in Sweden is expected to cut rates by 50 basis points on November 7. In contrast, Brazil's central bank is anticipated to raise its Selic rate by 50 basis points on November 6, showcasing the varied monetary policy approaches across different nations [4a7fae1c].
In the U.S., important economic data is set to be released, including the ISM index and consumer sentiment reports, which will provide further insights into the economy's health leading up to the elections. Additionally, the Treasury will auction $58 billion in three-year notes on November 4, followed by $42 billion in 10-year notes and $25 billion in 30-year bonds, which will be closely monitored by investors [4a7fae1c].
The Federal Reserve's cautious approach to rate adjustments reflects the broader economic implications and the political landscape as the elections draw near. Both President Biden and Prime Minister Sunak would prefer stable or decreasing interest rates, as this would benefit consumers and businesses alike [4a7fae1c]. However, inflation remains a key concern for central banks, influencing their decision-making processes [4a7fae1c]. Predictions suggest another quarter-point cut in December and potentially more in 2025, further complicating the economic landscape as the election approaches [1dd7e4f7].
As the political climate evolves, the outcomes of the elections will likely have profound implications for interest rates and the overall economy, making this a pivotal moment for both U.S. and global markets. The high U.S. deficit continues to impact future rate decisions, adding another layer of complexity to the Fed's monetary policy [4a7fae1c].