Economics

The Fed is likely cutting rates again Thursday. Everything you need to know

Published

5 months ago

November 6, 2024

Federal Reserve Board Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024. REUTERS/Tom Brenner

Tom Brenner | Reuters

The Federal Reserve likely will stick to the business at hand when it wraps up its meeting Thursday with another interest rate cut, but will have its eye on the future against a backdrop that suddenly has gotten a lot more complicated.

Financial markets are pricing in a near-certainty that the central bank’s Federal Open Market Committee will lower its benchmark borrowing cost by a quarter percentage point as it seeks to “recalibrate” policy for an economy that is seeing the inflation rate moderate and the labor market soften.

The focus, though, will turn to what’s ahead for Chair Jerome Powell and his Fed colleagues as they navigate a shifting economy — and the political earthquake of Donald Trump’s stunning victory in the presidential race.

“We think Powell will refuse to give any early judgment on the implications of the election for the economy and rates, and will seek to be a source of stability and calm,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a a note issued before the election’s outcome was known.

In keeping with policymakers’ historical desire to stay above the political fray, Powell “will say the Fed will take the time it needs to study the new administration’s plans” then will “refine this assessment as actual policies are developed and enacted,” Guha added.

So while the immediate action will be to stay the course and enact the cut, which equals 25 basis points, the market’s attention likely will turn to what the committee and Powell have to say about the future. The fed funds rate, which sets what banks charge each other for overnight lending but often influences consumer debt as well, is currently targeted in a range between 4.75%-5.0%.

Market pricing currently favors another quarter-point cut in December, followed by a January pause then multiple reductions through 2025.

Preparing for Trump

But if Trump’s agenda — tax cuts, higher spending and aggressive tariffs — comes to fruition, it could have a meaningful impact on a Fed trying to right-size policy after the mammoth rate hikes aimed at controlling inflation. Many economists believe another round of isolationist economic moves from the president-elect could reignite inflation, which held below 3% during Trump’s entire first-term despite a similar recipe.

Trump was a frequent critic of Powell and the Fed during his term, which ran from 2017-21, and is in favor of low interest rates.

“Everyone is on the lookout for future rate cuts and whether anything is telegraphed,” said Quincy Krosby, chief global strategist at LPL Financial. “Also, however, there’s the question of whether or not they can declare victory on inflation.”

Any answers to those questions would be largely left to Powell’s post-meeting news conference.

Though the committee will release its joint decision on rates, it will not provide an update on its Summary of Economic Projections, a document issued quarterly that includes consensus updates on inflation, GDP growth and unemployment, as well as the anonymous “dot plot” of individual officials’ interest rate expectations.

Beyond the January pause, there’s considerable market uncertainty about where the Fed is heading. The SEP will be updated next in December.

“What we’re going to hear more and more of is the terminal rate,” Krosby said. “That’s going to come back into the lexicon if yields continue to climb higher, and it’s not completely associated with growth.”

So where’s the end?

Traders in the fed funds futures market are betting on an aggressive pace of cuts that by the close of 2025 would take the benchmark rate to a target range of 3.75%-4.0%, or a full percentage point below the current level following September’s half percentage point cut. The Secured Overnight Financing Rate for banks is a bit more cautious, indicating a short-term rate around 4.2% at the end of next year.

“A key question here is, what’s the end point of this rate cut cycle?” said Bill English, the Fed’s former head of monetary affairs and now a finance professor at the Yale School of Management. “Fairly soon, they’ve got to think about, where do we think this rate cut period changes with the economy looking pretty strong. They may want to take a pause fairly soon and see how things develop.”

Powell also may be called on to address the Fed’s current moves to reduce the bond holdings on its balance sheet.

Since commencing the effort in June 2022, the Fed has shaved nearly $2 trillion off its holdings in Treasurys and mortgage-backed securities. Fed officials have said that the balance sheet reduction can continue even while they cut rates, though Wall Street expectations are for the run-off to end as soon as early 2025.

“They’ve been happy to just kind of leave that percolating in the background and they probably continue to do that,” English said. “But there’s going to be a lot of interest over the next few meetings. At what point do they make a further adjustment to the pace of runoffs?”

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Economics

President Donald Trump says Fed Chair Powell should cut interest rates and ‘stop playing politics’

Published

4 hours ago

April 4, 2025

Business Finance News

U.S. Federal Reserve Chair Jerome Powell and U.S. President Donald Trump.

Craig Hudson | Evelyn Hockstein | Reuters

President Donald Trump on Friday called for Federal Reserve Chair Jerome Powell to cut interest rates, even as his tariff blitz roiled markets and raised fears of a rebound in inflation.

“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Trump said in a post on Truth Social. “Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Trump’s post comes as global equity markets are selling off sharply. The president’s new tariff policy, unveiled on Wednesday, has raised concerns about a global economic slowdown.

The new trade policies may also be a barrier that keep the Federal Reserve from cutting. The central bank has paused its rate cuts in recent meetings, in part because progress on reducing inflation appeared to have plateaued. The new tariffs could lead to a widespread rise in prices, at least temporarily, that further complicates the inflation picture.

On Friday, Powell told business journalists in Arlington, Va., that the Fed was “well positioned to wait for greater clarity” before making changes like rate cuts.

Market-based interest rates have already fallen sharply this week, with the 10-year U.S. Treasury yield now below 4%. Treasury yields often fall when investors are worried about a potential recession.

Movement in the Fed funds futures market implies that traders now expect at least four rate cuts of 0.25 percentage points from the central bank this year, according to the CME’s FedWatch tool. At a meeting last month, central bankers projected just two rate cuts.

This is breaking news. Please refresh for updates.

Economics

Jobs report March 2025:

Published

7 hours ago

April 4, 2025

Business Finance News

Job growth was stronger than expected in March, providing at least temporary reassurance that the labor market is stable, the Labor Department reported Friday.

Nonfarm payrolls increased 228,000 for the month, up from the revised 117,000 in February and better than the Dow Jones estimate for 140,000, according to the Bureau of Labor Statistics.

However, the unemployment rate moved up to 4.2%, higher than the 4.1% forecast as the labor force participation rate also increased.

Though the headline number beat estimates, the report comes against a highly uncertain backdrop after President Donald Trump’s tariff announcement this week that has intensified fears of a global trade war that could damage economic growth.

Stocks reacted little to the report, with futures tied to the Dow Jones Industrial Average off their lows still down by more than 900 points while Treasury yields held sharply negative.

“Today’s better than expected jobs report will help ease fears of an immediate softening in the US labor market,” said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. “However, this number has become a side dish with the market just focusing on the entrée: tariffs.”

Trump announced a flat duty of 10% against all trading partners along with a wide menu of so-called reciprocal tariffs that already have provoked retaliation from China and others. Wall Street has been in aggressively sell-off mode for the past two days, with stocks tumbling and investors flocking to the safety of fixed income.

Previous indicators showed the labor market holding up, but the tariff moves raise the possibility that companies will hold back on hiring as they assess just what the new trade landscape will look like.

The March numbers, though, pointed to a still-strong labor market, though the January and February counts saw substantial downward revisions. In addition to the cut of 34,000 from the initial count for February, January’s growth is now at just 111,000, down 14,000 from the previous estimate.

Average hourly earnings increased 0.3% on the month, in line with the forecast, while the annual rate of 3.8% was 0.1 percentage point below the estimate and the lowest level since July 2024. The average work week was unchanged at 34.2 hours.

For March, health care was the leading growth area, consistent with prior months. The industry added 54,000 jobs, almost exactly in line with its 12-month average. Other growth areas included social assistance and retail, which both added 24,000, while transportation and warehousing showed a 23,000 increase.

Federal government positions declined by just 4,000, despite the Elon Musk-led efforts, though the Department of Government Efficiency, to pare the federal workforce. However, the BLS noted that workers on severance or paid leave are counted as employed. A report Thursday from consultancy firm Challenger, Gray & Christmas indicated that DOGE-related layoffs have totaled more than 275,000 so far.

“While Friday’s jobs report showed that the economy is still adding jobs even with the tariff uncertainty and Federal job cuts, the data is backward looking and doesn’t say anything about how employers might fare over the coming months,” said Glen Smith, chief investment officer at GDS Wealth Management.

A broader unemployment indicator that includes those not looking for work as well as workers holding part-time jobs for economic reasons — the underemployed — edged lower to 7.9%.

The survey of households, which is used to determine the unemployment rate, was closely in line with the establishment payroll count, as it showed a gain of 201,000 workers.

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Economics

China to impose 34% retaliatory tariff on all goods imported from the U.S.

Published

8 hours ago

April 4, 2025

Business Finance News

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.

Aly Song | Reuters

China’s finance ministry on Friday said it will impose a 34% tariff on all goods imported from the U.S. starting on April 10, following duties imposed by U.S. President Donald Trump’s administration earlier this week.

“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” the ministry said, according to a Google translation.

It further criticized Washington’s decision to impose 34% of additional reciprocal levies on China — bringing total U.S. tariffs against the country to 54% — as “inconsistent with international trade rules” and “seriously” undermining Chinese interests, as well as endangering “global economic development and the stability of the production and supply chain,” according to a Google-translated report from Chinese state news outlet Xinhua.

Separately, China also added 11 U.S. firms to the “unreliable entities list” that the Beijing administration says have violated market rules or contractual commitments. China’s ministry of commerce also added 16 U.S. entities to its export control list and said it would implement export controls on seven types of rare-earth related items, including samarium, gadolinium and terbium.

CNBC has reached out to the White House for comment.

Beijing, which also entertained a tenuous trade relationship with Washington under Trump’s first term, had warned that it would take “resolute counter-measures” to safeguard its own interests after the White House disclosed its latest sweeping tariffs on Wednesday.

Other U.S. trading partners had held off from announcing retaliatory tariffs amid hopes of further negotiations, with the European Union nevertheless voicing a readiness to respond.

The mutual U.S.-China levies are set to impact a trade relationship worth $582.4 billion in goods in 2024, according to the Office of the U.S. Trade Representative.

Analysts expect the U.S.’ protectionist trade policies to steer China toward other trading partners and see it implement further stimulus measures in an effort to galvanize the economy. China has been battling a property crisis and weak consumer and business sentiment since the end of the Covid-19 pandemic.

China’s retaliatory tariffs announced Friday exacerbated declines in global markets which had already been thrust into turmoil by fears of inflationary, recessionary and global economic growth risks following the White House’s tariffs.