Good morning. Just two days after the U.S. presidential election, the Federal Reserve will announce this afternoon whether it has decided to implement a second rate cut this year.
This comes after the Fed announced a 50-basis point cut to its benchmark interest rate in mid-September, the first cut in four years. For now, the central bank remains on course to cut interest rates another 25 basis points, Mark T. Williams, a former bank examiner for the Federal Reserve, told me. This decision is supported by strong employment numbers and inflation trending down to Fed target rates, he said.
Will the anticipated cut help consumers in what is still a tough housing market? “Unfortunately consumers will not feel needed relief as the yield on the bellwether 10-year treasury, post-election, has leaped to almost 4.5%,” said Williams, a finance faculty member at Boston University’s Questrom School of Business. Given how the 10-year treasury shapes mortgage rates, the cost of borrowing is likely to remain higher for longer, he said, adding that higher mortgage rates will also reduce the amount of homes sold.
"The bond markets have been betting on a Trump win for about the last six weeks,” Peter Ricchiuti, a finance professor at Tulane University’s A.B. Freeman School of Business, told me. The yield on the 10-year Treasury has soared over this time mainly because tariffs are inflationary. Ricchiuti also thinks the Fed will announce another rate cut.
The post-election market reaction has been “swift and telling,” Williams said. “The sizable post-election spike in yields is driven by concerns that Trump policies including tax cuts and deficit spending will push inflation back up,” he said.
Inflation reached 9.1% in June 2022, the highest 12-month increase in about 40 years, due to the COVID-19 pandemic. After a series of rate hikes, inflation fell to 2.1% in September, near the Fed’s target of 2%.
The Fed is data dependent and the fiscal implications of President-elect Donald Trump's policies have not yet made its way to the economic data, Williams said. “Should Trump implement fiscal policies as promised, it could ignite higher inflation by June 2025,” he said.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
