U.S. election and its impact on the Fed's steps

Reuters

U.S. election and its impact on the Fed's steps

2024 11월 5, 오후 12:20 GMT

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STOXX 600 broadly unchanged

U.S. heads to polls in toss-up election

Miners, utilities lead

Wall St futures inch up

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U.S. ELECTION AND ITS IMPACT ON THE FED'S STEPS

Traders all but certain the Federal Reserve will cut interest rates by 25 basis points on Thursday, no matter who wins the U.S. election and have also priced in a sizeable amount of easing this year and next. But this assumption may prove incorrect.

"Whoever wins is likely to implement inflationary policies," said Deborah Cunningham, chief investment officer of global liquidity markets at Federated Hermes. "To the extent that basic economic tenets still apply in this odd economy, lower taxes (especially on personal income) tend to increase spending/capital expenditures and demand."

Democrat Kamala Harris' promise of a "people-first presidency" includes higher taxes on ultra-rich, but lower taxes on workers' tips. Republican Donald Trump has based his campaign on a manifesto of lower corporate taxes, potentially reviving price pressures.

Both Trump and Harris have also suggested significant increases in the budget deficit through increased fiscal spending.

Meanwhile, mixed data on the labour market and inflation has investors pondering about the size of further rate cuts from the Fed, after the central bank reduced rates by a large 50 bps in September.

"Yes, the data had softened, and the markets gave them the opportunity for the large cut, but few expected the combination of a rebounding jobs market and sticky inflation," said Cunningham.

If the Fed lowers rate by a quarter point this week, which is what Federated Hermes expects, the central bank could hold rates in December before easing again in January and then continuing that pattern of cut/not cut for multiple meetings, she added.

Traders however are pricing in another 25 bps cut in December and close to 100 bps of easing by June 2025.

(Sruthi Shankar)

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TUESDAY'S OTHER LIVE MARKETS POSTS:

IS BULLISH POSITIONING A RISK, GOING INTO US VOTE? CLICK HERE

WHY EURO AREA INFLATION COULD STAY BELOW 2% FOR LONG CLICK HERE

STOCKS HOLD THEIR BREATH AS AMERICA VOTES CLICK HERE

EUROPEAN FUTURES STEADY AS ELECTION DAY ARRIVES CLICK HERE

MARKETS BUCKLE UP FOR ELECTION DAY CLICK HERE

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