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The U.S. Federal Reserve (Fed) will announce its interest rate decision tonight. In September, it made its first rate cut in nearly four and a half years, reducing rates by a significant 50 basis points. This time, analysts expect a smaller 25 basis point cut. After quickly moving past the U.S. elections, global markets are now focused on the Fed’s decision.
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Why Do Markets Care About the Fed’s Decision?
The Fed’s interest rates are a key indicator for markets. When rates decrease, cash flow in the economy rises, which can lead investors to shift toward riskier assets. However, there is also a chance that the Fed may choose not to make any changes. Futures market data indicates a 1% likelihood of a 50 basis point cut, while a 25 basis point cut is expected with a 99% likelihood. In this case, the probability of no change in rates remains very low.
Political pressures on the Fed’s interest rate decision are a current topic. Former U.S. President Trump had pushed for rate cuts, reportedly telling Powell to “cut rates and wait.” These demands may have cast doubt on the Fed’s independence. However, Powell consistently emphasizes that they are an independent institution.
Powell’s Statements Eagerly Awaited
In today’s meeting, Powell’s statements will be as important as the Fed’s decision. While Powell may avoid commenting on the U.S. election results, he may give signals regarding interest rate policy. Powell consistently emphasizes the Fed’s independence from the government, a stance that strengthens his credibility.
This decision and the accompanying statements will be key in determining the short-term direction of the markets.
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