The Federal Reserve approved its second consecutive interest rate cut Thursday, moving at a less aggressive pace than before but continuing its efforts to right-size monetary policy.
In a follow-up to September’s big half percentage point reduction, the Federal Open Market Committee lowered its benchmark overnight borrowing rate by a quarter percentage point, or 25 basis points, to a target range of 4.50%-4.75%. The rate sets what banks charge each other for overnight lending but often influences consumer debt instruments such as mortgages, credit cards and auto loans.
Markets had widely expected the move, which was telegraphed both at the September meeting and in follow-up remarks from policymakers since then. The vote was unanimous, unlike the previous move that saw the first “no” vote from a Fed governor since 2005. This time, Governor Michelle Bowman went along with the decision.
The post-meeting statement reflected a few tweaks in how the Fed views the economy. Among them was an altered view in how it assesses the effort to bring down inflation while supporting the labor market.
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” the document stated, a change from September when it noted “greater confidence” in the process.
Fed officials have justified the easing mode for policy as they view supporting employment becoming at least as much of a priority as arresting inflation.
On the labor market, the statement said “conditions have generally eased, and the unemployment rate has moved up but remains low.” The committee again said the economy “has continued to expand at a solid pace.”
Officials have largely framed the change in policy as an attempt to get the rate structure back in line with an economy where inflation is drifting back to the central bank’s 2% target while the labor market has shown some indications of softening. Fed Chair Jerome Powell has spoken of “recalibrating” policy back to where it no longer needs to be as restrictive as it was when the central bank focused almost solely on taming inflation.
Powell will answer questions about the decision at his 2:30 p.m. ET news conference. The November meeting was moved back a day due to the U.S. presidential election.
There is uncertainty over how far the Fed will need to go with cuts as the macro economy continues to post solid growth and inflation remains a stifling problem for U.S. households.
Gross domestic product grew at a 2.8% pace in the third quarter, less than expected and slightly below the second-quarter level, but still above the historical trend for the U.S. around 1.8%-2%. Preliminary tracking for the fourth quarter is pointing to growth around 2.4%, according to the Atlanta Fed.
Generally, the labor market has held up well. However, nonfarm payrolls increased by just by 12,000 in October, though the weakness was attributed in part to storms in the Southeast and labor strikes. The decision comes amid a changing political backdrop.
President-elect Donald Trump scored a stunning victory in Tuesday’s election. Economists largely expect his policies to pose challenges for inflation, with his stated intentions of punitive tariffs and mass deportations for undocumented immigrants. In his first term, however, inflation held low while economic growth, outside of the initial phase of the Covid pandemic, held strong.
Still, Trump was a fierce critic of Powell and his colleagues during his first stint in office, and the chair’s term expires in early 2026. Central bankers assiduously steer clear of commenting on political matters, but the Trump dynamic could be an overhang for the course of policy ahead.
An acceleration in economic activity under Trump could persuade the Fed to cut rates less, depending on how inflation reacts.
Questions have arisen over what the “terminal” point is for the Fed, or the point at which it will decide it has cut enough and has its benchmark rate where it is neither pushing nor holding back growth. Traders expect the Fed likely will approve another quarter-point cut in December then pause in January as it assesses the impact of its tightening moves, according to the CME Group’s FedWatch tool.
The FOMC indicated in September that members expected a half percentage point more in cuts by the of this year and then another full percentage point in 2025.
The September “dot plot” of individual officials’ expectations pointed to a terminal rate of 2.9%, which would imply another half percentage point of cuts in 2026.
Even with the Fed lowering rates, markets have not responded in kind.
Treasury yields have jumped higher since the September cut, as have mortgage rates. The 30-year mortgage, for instance, has climbed about 0.7 percentage point to 6.8%, according to Freddie Mac. The 10-year Treasury yield is up almost as much.
The Fed is seeking to achieve a “soft landing” for the economy in which it can bring down inflation without causing a recession. The Fed’s preferred inflation indicator most recently showed a 2.1% 12-month rate, though the so-called core, which excludes food and energy and is generally considered a better long-run indicator, was at 2.7%.
This is a comparison of Thursday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in September.
Text removed from the September statement is in red with a horizontal line through the middle.
Text appearing for the first time in the new statement is in red and underlined.
Check out the companies making headlines in midday trading. Dutch Bros — The stock popped more than 32% following the coffee chain’s better-than-expected third-quarter results. Dutch Bros earned 16 cents per share on revenue of $338 million for the period, while analysts surveyed by LSEG had penciled in 12 cents per share and $325 million in revenue. Trump Media & Technology Group — Shares of President-elect Donald Trump’s media company plunged more than 20%, giving back the gains in the previous session triggered by his election victory. The stock had popped 5.9% on Wednesday after the Republican was elected the 47th president of the United States. Warner Bros. Discovery — Shares of the streaming platform jumped 9.9% after Warner Bros. Discovery reported third-quarter earnings that reflected its biggest quarterly subscription growth since inception. Warner Bros. Discovery added 7.2 million global subscribers during the quarterly period and had 110.5 million subscribers as of Sept. 30. Under Armour — The athletic clothing company’s stock rallied 33% on stronger-than-expected fiscal second-quarter results. Under Armour posted adjusted earnings per share of 30 cents on revenue of $1.40 billion, while analysts polled by LSEG expected a profit of 20 cents per share and revenue of $1.39 billion. Lyft — Shares rallied 24% after the rideshare company posted a fourth-quarter outlook that beat analysts expectations. Lyft expects current-quarter bookings to come in between $4.28 billion to $4.35 billion, topping a FactSet consensus of $4.23 billion. Lyft also reported a third-quarter adjusted EBITDA and revenue beat. Wolfspeed — The semiconductor manufacturer plunged 34% after fiscal first-quarter revenue and current-quarter guidance came in weaker than expected. Wolfspeed posted revenue of $195 million for the first fiscal quarter, missing the LSEG consensus forecast by $5 million. The company said to expect between $160 million and $200 million in revenue during the current quarter, less than the $215 million figure penciled in. Match Group — Shares of the dating platform fell 17% on mixed third-quarter results and a disappointing fourth-quarter revenue outlook. The company called for a range of $865 million to $875 million in revenue for the fourth quarter, coming out below the forecast $905.1 million from analysts polled by FactSet. Arm Holdings — The semiconductor company gained 5.5% after its quarter results beat estimates. Arm posted adjusted earnings per share of 30 cents on revenue of $844 million for the second quarter. Analysts polled by LSEG forecast a profit of 26 cents per share and revenue of $808 million. Take-Two Interactive Software — The video game maker advanced 6% after posting a top-line beat in the fiscal second-quarter. Take-Two reported $1.47 billion in revenue, topping the expectation of $1.43 billion from analysts surveyed by LSEG. HubSpot — Shares rose 10% after the customer platform company’s quarterly earnings of $2.18 per share on revenue of $669.7 million surpassed expectations. Analysts polled by FactSet estimated earnings of $1.91 per share on $647 million in revenue. AppLovin — The software publisher’s stock price skyrocketed 44% after its third-quarter results beat analysts’ expectations. AppLovin also guided its fourth-quarter EBITDA of $740 million higher to $760 million, higher than the $667 million StreetAccount forecast. Zillow Group — The housing market site saw its shares jump 24%, driven by higher-than-expected earnings and revenue results from the third quarter. Zillow posted adjusted earnings per share of 35 cents on revenue of $581 million. Analysts surveyed by LSEG forecast 29 cents in earnings per share and $555 million in revenue. e.l.f. Beauty — Shares of the beauty products retailer popped 18% after e.l.f. Beauty lifted its full-year earnings and revenue outlook. The company forecasted earnings in the range of $3.47 to $3.53 per share, higher than prior guidance of $3.36 to $3.41 per share. Its revenue is now in the range of $1.31 billion to $1.33 billion, up from a forecast of $1.28 billion to $1.30 billion. Gilead Sciences — Shares of gained 5.9% after the biotech company issued better-than-expected full-year earnings guidance. The company now sees earnings per share in the range of $4.25 to $4.45. Analysts polled by LSEG called for $3.80 per share. — CNBC’s Alex Harring, Sean Conlon, Hakyung Kim, Yun Li and Lisa Kailai Han contributed reporting.
Attendees cheer as a broadcast of former US President and Republican presidential candidate Donald Trum speaking at his Florida election party is shown on a screen at the Nevada GOP election watch party in Las Vegas, Nevada on November 6, 2024.
Ronda Churchill | Afp | Getty Images
Wall Street dealmakers and corporate leaders expect the flood gates to open on merger and acquisition activity after President-elect Donald Trump takes office in January.
And he’ll likely have congressional help. Trump defeated Democratic candidate Vice President Kamala Harris, and Republicans claimed a majority of the Senate in elections this week. That red wave is expected to spell loosening regulations on deal-making, with plenty of pent-up demand.
“We know kind of where the world is headed in a Trump environment because we’ve seen it before,” said Jeffrey Solomon, president of TD Cowen, on CNBC’s “Money Movers” Wednesday. “I think the regulatory environment will be much more conducive to economic growth. There will be lighter and targeted regulation.”
Solomon added that the scaled-back regulation will be focused on certain areas “of particular interest to the Trump administration,” rather than a broad based reassessment of the entire landscape.
In recent years, there has been greater scrutiny of pending deals by the Biden administration’s Department of Justice and Federal Trade Commission, headed by Chair Lina Khan. Some have pointed to that dynamic as a chilling factor on deal flow. High interest rates and soaring company valuations have contributed, too.
Khan said in September that “when you see greater scrutiny of mergers, you can see greater deterrence of illegal mergers.” Her hard line has drawn harsh criticism, but now, there’s optimism around a forthcoming FTC with a lighter hand.
“Assuming interest rates drop and you see corporate tax rates go down, the ingredients are there for a really active M&A market,” said one top dealmaker, who talked to CNBC on the condition of anonymity to speak candidly.
Some sectors, including financial and pharmaceutical industries in particular, are likely to get a lift under a second Trump regime, experts said.
“We could see domestic manufacturing benefit from increased tariffs as well as a growth in technology, which slowed down from a tighter antitrust environment,” said Howard Gutman, private equity strategy and coverage lead for MorganFranklin Consulting. “Additionally, we expect the aerospace and defense industry to grow as it has historically done during past Republican administrations paired with the broader geopolitical environment.”
Other industries, such as tech, may still face an uphill battle in getting deals done.
One M&A advisor, who also spoke to CNBC anonymously, noted that Trump’s disdain for Big Tech companies — historically active deal-makers — might keep them on the sidelines. On Wednesday, tech leaders took to social media to congratulate Trump.
Apparent GOP opposition to the CHIPS Act means that semiconductor consolidation might be challenging, the advisor noted, while cautioning it is still too early to know what a Trump presidency would mean. CNBC previously reported that Qualcomm recently approached Intel about a potential takeover.
“I think the simplest way to put it is more deals, less regulation with the administration having its thumb on the scale, perhaps with a willingness to pick winners and losers,” said Jonathan Miller, chief executive of Integrated Media, which specializes in digital media investments.
Regional banks, many of which recognize the need for scale, will also likely look to consolidate, said one former industry executive. That advisor noted that smaller banks had been getting gobbled up for “some time,” but that the pace and size of those acquisitions would likely ramp up under a Trump presidency.
Pharmaceutical executives are also optimistic that lighter antitrust enforcement could clear the way for deal-making, said one health-care-focused M&A advisor, who added that antitrust enforcement could have “hardly gotten worse” under either administration but now believes things will improve “meaningfully.”
Khan has taken on scores of biopharma mergers over the last four years, arguing that monopolies will stifle the development of new drugs in certain disease areas and hurt consumer choice. Biotech company Illumina last year said it would divest diagnostic test maker Grail after heated battles with the FTC and European antitrust regulators.
Also last year, the FTC blocked Sanofi’s proposed acquisition of a drug in development for Pompe disease, a genetic condition, from Maze Therapeutics. Sanofi ultimately terminated that deal.
“Whether or not Lina Khan is bounced day one is a key consideration, but even if fewer changes at the FTC take place, there is no doubt this administration — at least on paper — will be far more amicable when it comes to business combinations,” Jared Holz, Mizuho health-care equity strategist, said in an email on Wednesday.
One top dealmaker expected an M&A uptick broadly, but agreed that the financial sector and pharmaceuticals were particularly poised for a resurgence. That deal-maker also noted that with the Senate flipping, more outspoken antitrust voices like Sen. Elizabeth Warren, D-Mass., could find it more difficult to push for DOJ or FTC investigations.
Eyes on retail, media
David Zaslav at the Allen & Company Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
A Trump presidency could usher in a number of retail deals that have been hamstrung by the FTC. Kroger’sbid to take over grocery chain Albertsons could have a better chance of getting approved under Trump, as could Tapestry’s proposed acquisition of Capri.
The merger between Kroger and Albertsons is currently under review by a federal judge, while Tapestry is working to appeal a federal order that granted the FTC’s motion for a preliminary injunction against the tie-up.
“The hostile approach of the FTC to mergers and acquisitions will almost certainly be reset and replaced with a worldview that is more favorable to corporate dealmaking,” said GlobalData managing director Neil Saunders. “This does not necessarily mean that big deals like Kroger-Albertsons will be waved through, but it does mean others like Tapestry-Capri will receive a far warmer reception than they have under the Biden administration.”
Meanwhile, ongoing turmoil in the media industry has led many to consider consolidation as the next step for the sector.
Warner Bros. Discovery CEO David Zaslav on Thursday highlighted opportunities that could come up if regulations were to loosen, doubling down on comments he made earlier this year at Allen & Co.’s annual Sun Valley conference.
“We have an upcoming new administration. … It’s too early to tell, but it may offer a pace of change and opportunity for consolidation that may be quite different, that would provide a real positive and accelerated impact on this industry that’s needed,” Zaslav said on an earnings call.
Broadcast station group owner Sinclair on Wednesday echoed a similar sentiment.
“We’re very excited about the upcoming regulatory environment,” CEO Chris Ripley said during an earnings call. “It does feel like a cloud over the industry is lifting here.”
Still, the track record between the previous Trump administration and the Biden administration for media industry deals is split.
Trump’s DOJ allowed Disney to buy Fox’s assets, but then sued to block AT&T’s deal for Time Warner.
Under the Biden administration, Amazon’s $8.5 billion deal for MGM and the merger of Warner Bros. and Discovery Communications were both waved through, but a federal judge blocked the $2.2 billion sale of Simon & Schuster to Penguin Random House.
Skydance Media and Paramount Global agreed to merge earlier this year and expect to receive regulatory approval in 2025.