{"id":13354,"date":"2024-11-07T02:15:19","date_gmt":"2024-11-07T02:15:19","guid":{"rendered":"https:\/\/www.vtmarkets.com\/blog\/?p=13354"},"modified":"2024-11-07T02:15:19","modified_gmt":"2024-11-07T02:15:19","slug":"the-november-fed-meeting-is-here-where-are-interest-rates-heading","status":"publish","type":"post","link":"https:\/\/www.vtmarketsglobal.com\/en\/opinion\/13354\/","title":{"rendered":"The November Fed meeting is here: Where are interest rates heading?\u00a0\u00a0"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

The November interest rate meeting is scheduled for the same time as the US general election, so the Fed has postponed it by a day. The policy meeting will now take place on November 6-7, with the rate decision announced at 3:00 AM Beijing time on November 8 (Friday). <\/p>\n\n\n\n

See also: This Billionaire Investor Sees the US Election Risks, Braces for Even More Inflation Trades<\/strong><\/a> <\/p>\n\n\n\n

As the Fed starts cutting, Wall Street gets nervous<\/strong> <\/h2>\n\n\n\n

Following the initial rate cut by the Federal Reserve, the discussion has moved from \u201cwhen\u201d cuts would start to \u201cwhere\u201d interest rates are expected to go from here. <\/p>\n\n\n\n

In case you missed it, here\u2019s a recap of what happened when Fed slashed rates by 50bps in September<\/a>. <\/strong>
 
Economists often focus on the Fed\u2019s neutral rate, or \u201cr-star\u201d\u2014basically, the rate that keeps the economy steady without speeding it up or slowing it down. It\u2019s the key measure for whether the Fed\u2019s policy is tightening or loosening. <\/p>\n\n\n\n

Think of R-star as the “Goldilocks zone” for interest rates\u2014not too high, not too low, but just right to keep prices stable and maximise employment. Although R-star plays a key role in guiding Fed policy, it\u2019s hard to pinpoint. <\/p>\n\n\n\n

Neutral interest rates are full of uncertainty<\/strong> <\/h2>\n\n\n\n

Understanding the neutral rate is crucial because it helps central bankers to determine whether their monetary policy is accommodative, neutral, or restrictive. This insight helps them effectively use one of their main tools\u2014interest rates\u2014to either curb or stimulate economic activity. <\/p>\n\n\n\n

The main concern is that the neutral interest rate could be higher than what the Fed expects.  <\/p>\n\n\n\n

If that\u2019s the case, the Fed might end up cutting rates too much, which could lead to another surge in inflation.<\/em><\/strong> <\/p>\n\n\n\n

Is the Fed cutting rates excessively?<\/strong> <\/h2>\n\n\n\n

If this situation happens, the bond market is likely to feel the effects first.  <\/p>\n\n\n\n

However, if volatility causes inflation to stay high, it could quickly affect the stock market, forex, and other markets as well. <\/p>\n\n\n\n

Some market indicators, such as the difference between 5-year US Treasury yields and the yields on inflation-protected bonds of the same maturity, seem to reflect these anxieties. <\/p>\n\n\n\n

Since the Fed’s initial rate cut target last month, this spread\u2014commonly known as the 5-year break-even inflation rate\u2014has already bounced back, suggesting that some investors are anticipating more persistent inflation in the future. <\/p>\n\n\n\n\n\n\n\n

Source: Federal Reserve Bank of St. Louis<\/a> <\/p>\n\n\n\n

After an unexpectedly weak jobs report caused a global stock market sell-off<\/a>, numerous critics argued that the Federal Reserve seemed to be falling behind, with some even advocating for emergency rate cuts. <\/p>\n\n\n\n

Debate among policymakers behind the scenes<\/strong> <\/h2>\n\n\n\n

Federal Reserve officials often discuss this rate to help clarify the complex decisions they\u2019re making, but even they have varying opinions on it. <\/p>\n\n\n\n

Fed Board member Bowman voted against the decision to lower the policy rate target by 50 bps in September, marking the first dissent since 2005. <\/p>\n\n\n\n

Additionally, other Federal Reserve officials share skepticism about this decision. Atlanta Federal Reserve President Bostic mentioned to The Wall Street Journal that he is open to keeping rates steady<\/a> during the last two policy meetings of the year. <\/p>\n\n\n\n

Will the Fed cut interest rates by 25 basis points?<\/strong> <\/h2>\n\n\n\n

According to the CME Group’s FedWatch tool, traders forecast a 98% chance of a 25-basis-point rate cut by the Federal Reserve in November. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source: CME Group<\/span> <\/p>\n\n\n\n

While this week\u2019s policy meeting may not bring many surprises, Federal Reserve policymakers are grappling with a challenging economic puzzle: the U.S. labour market shows signs of cooling<\/a>, yet consumer spending remains strong.  <\/p>\n\n\n\n

\n

WSJ: The Fed has another meeting in two weeks. Will you support another interest rate cut at that meeting?

Daly: I'm going to say what I always say in times prior to this meeting, is that I'm data dependent. So I'll keep getting the information. I think it's a good time to\u2026<\/p>— Nick Timiraos (@NickTimiraos) October 22, 2024<\/a><\/blockquote>