Fed November meeting preview: 25bp rate cut expected
The Federal Reserve is widely expected to cut interest rates by 25 basis points at its November meeting. Here's what traders need to know.
What's expected from the November Fed meeting?
Markets are pricing in a 95% probability of a 25-basis point interest rate cut at the Federal Reserve's (Fed) November meeting. This would bring the Fed funds target range down to 4.5-4.75%.
The decision marks a significant shift in Fed policy, as inflation concerns have moderated and focus shifts to maintaining the strong labour market. September's inflation reading of 2.4% suggests the Fed's aggressive tightening cycle has been effective.
Recent economic data supports the case for easing, with robust job growth continuing as 254,000 positions were added in September. The unemployment rate remains low at 4.1%, indicating the labour market's resilience.
The trading platforms community will closely watch Jerome Powell's commentary for signals about the pace of future cuts. Markets expect an additional cut in December.
Key factors driving the Fed's decision
Current interest rates remain above the "neutral" level estimated between 3-3.5%, giving the Fed room to ease without risking economic overheating. This buffer provides flexibility in policy decisions.
The strong performance of US equities, with the S&P 500 up 22.9% year-to-date, suggests markets have already priced in rate cuts. However, this rally could extend further if the Fed maintains a dovish stance.
Economic projections remain positive, supporting the Fed's ability to implement a controlled easing cycle. The goal is achieving a "soft landing" - reducing rates without triggering a recession.
The upcoming presidential election adds another layer of complexity, though the Fed historically tries to maintain policy independence from political cycles.
Market implications of the expected rate cut
Treasury yields are expected to remain under pressure, with the 2-year yield projected to settle between 3.75-4% and the 10-year yield around 4.25%. This could create opportunities for forex trading.
The US dollar may weaken following the rate cut, though election uncertainties could override this effect. Forex traders should monitor both monetary policy and political developments.
Stock markets typically respond positively to rate cuts, potentially supporting further gains in major indices. The trading signals suggest continued upward momentum.
Spread betting and CFD trading volumes often increase around Fed meetings as traders position for market moves.
Future rate cut projections
The Fed is expected to implement further rate cuts through 2024-2025, with the path potentially influenced by the election outcome. Under Trump, rates might settle around 3.5%.
A Harris administration could see rates move lower to approximately 3%, reflecting different economic priorities. This divergence creates opportunities for trading online.
Market participants should prepare for various scenarios by monitoring economic indicators and policy statements. The trading platform provides tools for analysis.
Risk management becomes crucial during periods of policy transition, as market volatility often increases around significant Fed decisions.
How to trade the Fed meeting
- Research thoroughly and analyse potential market reactions
- Choose whether you want to trade or invest
- Open an account with us
- Search for relevant markets in our platform or app
- Place your trades with appropriate risk management
Remember that Fed decisions can impact multiple markets simultaneously, from currencies to indices and commodities. Consider diversifying your approach across different instruments.
Monitor real-time market movements and adjust positions accordingly. The demo account can help practice trading Fed announcements.
Stay informed about economic data releases and Fed communications that could influence future policy decisions.
Use technical and fundamental analysis to identify potential entry and exit points around the announcement.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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