It’s official. On November 7, 2024, the Federal Open Market Committee (FOMC) took another decisive step in its current monetary easing cycle by implementing a 25 basis point cut. This adjustment marks the second reduction in this easing cycle and signals the Fed’s proactive response to the evolving economic landscape.
Understanding the Federal Reserve’s decision
This 25 basis point reduction follows the recent trend of strategic rate adjustments aimed at bolstering the economy amidst signs of slowing growth. The decision underscores the Federal Reserve’s commitment to sustaining economic expansion without letting momentum falter. According to Powell, the labor market is not currently a source of inflationary pressures. As for the goal itself, the Fed has gained significant confidence in achieving it, and the recent US elections will not impact the central bank’s policy in the short term.
The FOMC has scheduled one more meeting this year, on December 17-18, which could introduce further adjustments depending on economic developments.
Key indicators to watch
Recent economic indicators heavily influenced the decision:
- Employment Data: The October Non-Farm Payrolls (NFP) reported a disappointing addition of only 12,000 jobs, significantly below expectations of 106,000 and previous months’ figures (223,000!), signaling a weakening in the labor market that necessitated action from the Fed. The following NFP report, due on December 6, will be crucial for assessing the ongoing health of the job market.
- Inflation Trends: Surprisingly, the latest Consumer Price Index (CPI) registered at 2.4%, a deviation from the anticipated 2.3%. However, this result is still lower than the previous reading of 2.5%. The next CPI update is scheduled for November 13, providing further insights into inflation dynamics.
- Economic Growth Indicators: Besides employment and inflation, monitoring statements from FOMC members, as well as upcoming Producer Price Index (PPI) and GDP data, will be vital for predicting the Fed’s future moves.
Immediate market reactions and strategies
Several hours after the FED’s move, the market remains virtually unchanged. The explanation can be found in the fact that it was a wholly expected cut. Moreover, the market might still be impressed by the election results and discount how Trump’s future cabinet will affect the geopolitical situation globally and, thus, the valuation of assets. The dollar remains at an elevated level relative to other currencies.
Solana’s 25% growth since the election.
Bitcoin is consolidating around $76k, which is an excellent environment for altcoins. Ethereum is rising for the 3rd day in a row and Solana for the 4th.
Conclusion
Yesterday’s rate cut, the second in the current cycle, reflects the Federal Reserve’s careful navigation through a complex economic environment. As we move forward, staying informed about upcoming economic reports and Fed communications will be essential for understanding the trajectory of U.S. monetary policy and adjusting investment strategies accordingly.
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