Fed is expected to cut rates by 25 basis points today but changes in rate view come on horizon after Trump’s victory

The US Federal Reserve is expected to cut interest rates by 25 basis points to 4.50%/4.75% range at the end of the two-day policy meeting today.

Markets are pricing in another rate cut in December although initial enthusiasm about a larger policy easing phase is fading, as inflation has moved closer to the central bank’s 2% target and labor market is cooling, with current circumstances requiring a review of Fed’s monetary policy view.

Another factor that may have strong impact on rate trajectory is election victory of Donald Trump, as new policies he promised to implement if he returns to the White House, will aim to give strong boost to the economy which will slow or possibly return inflation’s current downtrend.

In such conditions, markets started to change their bets, expecting only two rate cuts in 2025 which will bring rates to 3.75%/4.00%.

Adding to change in monetary policy view were better than expected economic data in past few months which point to solid condition of the US economy and likely to result in much sooner than expected end of Fed’s policy easing cycle, probably a year earlier than initially estimated.

Also, Trump’s victory and anticipated measures his administration plans to introduce, contribute to expectations for faster economic growth and subsequently reduce needs for stronger rate cuts in the near future.