US Interest Rates: Fed plays it safe, but there could be trouble ahead

8th November 2024

The Fed cut interest rates to 4.50-4.75%.

0.25% rate cut is in line with expectations following a 0.5% cut in September.

December rate decision in the balance as recent inflation data stronger than expected.

Jonathan Moyes, Head of Investment Research at Wealth Club said, "Two days after the US election, the Federal Reserve has played a straight bat and moved in line with market expectations, cutting rates by 0.25%.

Whilst inflation data may have come in a touch higher than expected in recent months, the Fed believes the US economy remains on a path towards 2.0% inflation.

The Fed declined to comment on fiscal policy and the large US fiscal deficit. The yield on US government bonds has risen sharply from around 3.6% at the time of the Fed's jumbo 0.5% rate cut in September to 4.37% today.

All eyes will be on Donald Trump and any major changes to tax and spending plans once the new administration has been formed. Go too far too soon with any tax cuts, and the Fed may be forced to hike rates to cool any additional inflationary pressures, potentially setting the stage for a conflict between the new administration and the Fed in 2025. For now, as ever, the outlook remains uncertain."