Implying that a pause in December is not ruled out? The Federal Reserve cut interest rates by 25 basis points as scheduled, but removed the statement expressing greater confidence in meeting inflation targets

Key Points:

The Federal Reserve cut interest rates by 25 basis points, and the slowdown in pace aligns with market expectations. Unlike the last decision where one member opposed, this time there was unanimous support.

The meeting statement removed the phrase "more confident in inflation's continued approach to 2%," raising speculation that it may hint at an open attitude towards pausing rate cuts in December.

The statement reiterated that the risks to employment and inflation are generally balanced and firmly committed to supporting full employment.

The statement added that the evaluation of the labor market conditions has become more accommodative, and removed the wording about slowing employment growth.

"New Federal Reserve News Agency": Following Trump's election, which sparked market enthusiasm and pushed up long-term interest rates, the Fed faces a new question of whether to slow down rate cuts; if inflation progress stagnates or market enthusiasm raises concerns about inflation exceeding targets, the Fed may hold a more reserved attitude towards continuing steady rate cuts.

As expected by the market, following the highly anticipated U.S. elections, the Federal Reserve slowed the pace of rate cuts, but some adjustments in the decision statement raised speculation about whether it hinted at the possibility of pausing rate cuts in December.

On Thursday, November 7, Eastern Time, the Federal Reserve announced after the Federal Open Market Committee (FOMC) meeting that it would lower the target range for the federal funds rate from 4.75% to 5.0% to 4.5% to 4.75%, a reduction of 25 basis points, which is half of the reduction decided at the last meeting in September. Following the initiation of the easing cycle for the first time in four years in September, this marks the second consecutive meeting where the Federal Reserve has decided to cut rates, totaling a reduction of 75 basis points after cumulative rate hikes of 525 basis points from March 2022 to July last year.

Unlike the 50 basis point cut in September, which had one dissenting vote, this rate cut decision received unanimous support from all 12 FOMC voting members, including Federal Reserve Governor Bowman, who advocated for a smaller 25 basis point cut in September.

The actions and magnitude of the Federal Reserve's rate cut align with market expectations. Earlier on Thursday, tools from the Chicago Mercantile Exchange (CME) indicated that the futures market expected a 99% probability of a 25 basis point rate cut by the Federal Reserve this week. However, following Trump's election as president, the difficulty of interest rate decisions in the coming year has increased. Given Trump's promised tariffs and tax cuts, which will bring upward inflationary pressure, analysts expect the Federal Reserve may act more cautiously and slow down rate cuts.

What surprised some observers is that the decision statement released after the meeting, while reiterating that the dual goals of employment and inflation faced generally balanced risks, removed the related wording expressing greater confidence in inflation returning to target. Some observers speculate that the removal of this statement may hint that Federal Reserve decision-makers are open to pausing rate cuts at the next meeting in December, in other words, not ruling out the possibility of a temporary halt in December.

Reiterating that the risks to employment and inflation are generally balanced and firmly committed to supporting full employment

This statement largely follows the content of the last FOMC meeting statement released on September 18. The most notable adjustment is the removal of the phrase added in the last statement that the FOMC "has become more confident in inflation's continued approach to 2%," while retaining the latter half of the previous addition, "the risks to achieving employment and inflation targets are generally balanced." This statement continues to reaffirm the commitment to bringing inflation back to the Federal Reserve's target of 2%, and reiterates the increased focus on employment goals mentioned in the last statement, including stating that the FOMC is "firmly committed to supporting full employment" and that the FOMC "is concerned about the dual mandate facing two-sided risks."

New Labor Market Conditions Have Loosened, Balance Sheet Reduction Remains Unchanged

In evaluating the economy, the main adjustment in this statement is the removal of the previous statement that "job growth has slowed," and the addition of comments on the labor market, stating that the conditions of the labor market have loosened.

Regarding inflation, this statement reiterates that inflation "remains somewhat elevated," stating that progress has been made on inflation, rather than the previous statement of "further" progress.

In terms of the plan for reducing quantitative tightening (QT), this statement continues to use the previous wording, stating that the FOMC will continue to reduce its holdings of U.S. Treasury securities, agency debt, and agency mortgage-backed securities (MBS). In other words, the Federal Reserve's actions to reduce its balance sheet remain unchanged.

The following red text shows the deletions and additions in this resolution statement compared to the previous one.

"New Federal Reserve Correspondent": The New Question of Whether the Fed Should Slow Rate Cuts After Trump's Election

Senior journalist Nick Timiraos, known as the "New Federal Reserve Correspondent," commented on social media that this rate cut of 25 basis points by the Federal Reserve was expected, and that this decision received unanimous support from voters, with minimal changes made to the meeting statement.

Timiraos is more concerned about the impact of the changing economic situation after Trump's election on Federal Reserve decisions. Earlier this week, after Trump's victory, he posted that the rate cut of 25 basis points this week was almost a foregone conclusion, and the market's focus has shifted to: how many more times the Federal Reserve needs to cut rates before achieving a "soft landing" for the U.S. economy; if the Republican Party takes both houses of Congress, the Fed may revise its "baseline assumptions" in December.

After the Federal Reserve announced the rate cut, Timiraos published an article titled "The Fed Cuts Rates Again as the Election Reshapes Growth Outlook." The article points out that after Trump's election sparked market enthusiasm and pushed up long-term interest rates, Fed officials face a new question: what might lead to a slowdown in the pace of rate cuts.

The article states:

"Because officials have little grasp of the level of the neutral interest rate, they are likely to be guided by economic performance in the coming months. If inflation continues to slow and demand for labor appears weak, officials may conclude that it is reasonable to continue cutting rates along the path they envisioned in September.

If the process of inflation (declining) stalls, or if market enthusiasm raises concerns that inflation may exceed the Fed's target, officials may be more hesitant to continue steadily cutting rates at successive meetings." Deutsche Bank's Chief U.S. Economist Matthew Luzzetti commented that the outcome of Trump's victory drove U.S. stocks to new highs, while improving the outlook for economic growth, rising inflation, and a better labor market, increasing the likelihood that the Federal Reserve will forgo interest rate cuts in December. He said, "From a risk management perspective, this may provide a strong rationale for the Fed to skip that meeting (action)."