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The Federal Reserve has decided to lower its key policy rate by a quarter percentage point following its latest policy meeting.
This move comes amid growing uncertainties surrounding the U.S. economy, which may be further influenced by the return of former President Donald Trump to office and the anticipated Republican control of Congress starting in January.
These political shifts could lead to significant policy changes, such as tax cuts, immigration restrictions, and import tariffs, which may alter the economic growth and inflation scenarios the Fed had been preparing for in the coming year.
While any changes from these proposals are expected to take time to move through Congress, recent economic data has been favorable for the Fed. Unemployment claims remained low, and productivity showed an encouraging increase of 2.2% in the third quarter, compensating for a rise in worker compensation. These positive trends in productivity have given the Fed confidence that inflation will continue to decline.
However, market sentiment is showing signs of uncertainty. With the Fed expected to halt its rate-cutting cycle by mid-next year, the policy rate is projected to settle between 3.75% and 4.00%, signaling a shift in expectations for future monetary policy.
On the other hand, many believe that after Trump’s election and the rate cut, crypto and stock markets are expected to enter a new bullish phase, even after just reaching all-time highs.