Fed Prepares for Rate Cuts Post-Election

The U.S. Federal Reserve is preparing to make its second interest rate cut of the year during its meeting on November 6-7. The ongoing cooling of inflation is cited as one of the main reasons behind the Fed's move. However, the outcome of the presidential election may not be known by the meeting date, and this uncertainty is not expected to be a decisive factor in the Fed's interest rate cut decision.

When a new president and Congress take office in January, particularly if Donald Trump wins the presidency, the Fed's policies are expected to become more uncertain. Trump's proposals regarding high tariffs on imports and immigration are being assessed due to their potential economic impacts. Economists suggest that some of Trump’s proposals could raise inflation, thereby prompting the Fed to re-evaluate its interest rate cut policy.

Impact of Interest Rate Changes

Following a half-point cut in September, the Fed plans to make a quarter-point downward adjustment in November, aiming to bring the interest rate down to approximately 4.6%. Another quarter-point cut in December and similar actions in the following year are also being considered. Such interest rate cuts would lower borrowing costs for consumers and businesses.

According to data released by the Biden administration, the U.S. economy continues to grow while the unemployment rate remains stable at 4.1%. This situation is emerging as one of the main factors behind the Fed's decision to lower interest rates. Fed officials, led by Powell, believe that high borrowing rates are no longer necessary and emphasize that the rate-cutting process will be gradual.

Efforts to Maintain Fed's Independence

Fed officials aim to determine where interest rates should be in the future. In this process, assessments will be made regarding how the economy responds to interest rate cuts. According to September’s forecasts, the neutral interest rate was considered to be at 2.9%, while many economists believe it should be between 3% and 3.5%.

Amid efforts to maintain the Fed's independence, it is expected that Powell will convey a message of distancing from political influences in meetings following the election. However, some economists also suggest that, despite the high levels of borrowing, the currently healthy economy may not require the Fed to overly loosen its interest rate cuts. Concerns persist regarding the inflationary effects of the tariffs previously enacted by President Trump and his new proposals.