There is a chance that it could take days or even weeks for investors to find out who won this week’s U.S. presidential and congressional elections.
The vote on Tuesday isn’t the only big event on the calendar, though. In fact, Federal Reserve Chairman Jerome Powell might steal the show at his post-meeting press conference on Thursday.
If you compare the November Fed meeting to the excitement that led up to the big interest rate cut in September, it might not be quite as exciting.
According to figures from CME Group, traders think that the Fed will almost certainly cut its policy rate target by 25 basis points on Thursday.
Not many people think Powell will say anything important that will change the central bank’s plans for changing monetary policy. It won’t be until December that the central bank releases any new economic forecasts. Micheal Feroli, Chief U.S. Economist at J.P. Morgan, says that any talk about other policy goals, like changing how fast the central bank reduces its balance sheet, will probably only be revealed in the meeting minutes, which won’t be made public until a few weeks after the meeting.
But the Fed could send investors a calming message by doing what they are supposed to do: interest rates are still expected to go down, even though Treasury yields have recently gone up. Even if it’s still not clear how fast they are falling.
MarketWatch talked to Jason Browne, president of Alexis Investment Partners. “Our view on the Fed is the sooner they can get themselves to whatever neutral is, the better,” he said. In this case, he was talking about the “neutral” rate, which is the theoretical level where monetary policy is neither too tight nor too open. Powell said that the Federal Reserve wants to get the policy rate back to a stable level over time.
A delayed election result could even work in the Fed’s favor, Browne said, by potentially enabling it to lower borrowing costs even more aggressively while avoiding accusations of playing politics.
Low interest rates should help both stock and bond prices go up if everything else stays the same. The Fed’s two-day policy meeting in December should end on December 18.
If the election isn’t clear, bigger cuts might be made.
There are a lot of people, including Browne, who think that the possible chaotic aftermath of this week’s election could lead to more aggressive rate cuts.
Philip Marey, a senior U.S. strategist at Rabobank, told MarketWatch on Friday that there is a “modest risk” that the election could cause market unrest that would force the Fed to make a bigger cut, either on Thursday or at an emergency meeting called before the end of the week.
“If markets get out of hand, the FOMC could choose a 50-basis-point cut as a safety net,” he said.
The December cut is still not 100%, the fund manager says.
Jeff Rosenkranz, portfolio manager for the Shelton Tactical Credit Fund at Shelton Capital Management, said that Friday’s jobs report helped dispel worries that the Fed may have moved too quickly when it cut rates so sharply in September.
However, he isn’t sure that two more 25-basis-point cuts will happen before the end of the year, even though CME Group data shows that buyers of interest-rate futures have come to expect this to happen.
In an interview with MarketWatch, Rosenkranz said, “Powell and company have been very consistent about depend on data, and there is a lot more data between now and December.”
Powell probably won’t say anything specific about how quickly the central bank might cut rates from now on, he said. Instead, he’ll probably just say that they are “data-dependent.”
Powell will almost certainly be asked about the election or how the rise in Treasury yields might affect their decisions. Rosenkranz thinks that Powell will most likely refuse to answer.
Control in Washington could change how the Fed thinks.
It doesn’t matter who wins in Washington on Tuesday; the Fed is expected to keep lowering rates.
How much and how quickly the central bank decides to lower interest rates in the future could, however, depend on how next week’s election turns out, says Ed Mills, managing director and Washington policy expert at Raymond James.
And yes, Powell likes to tell reporters at news conferences that the Fed does not control fiscal policy. Although Mills agrees, the central bank should still think about it because it has power over the economy.
The easiest thing that could happen is for the government to be split, which would let the central bank keep cutting rates as it would have otherwise.
Things would get more difficult if one party took over both Congress and the White House.
It’s not likely that Democrats will win the White House, the House of Representatives, and the Senate. If that happens, the Federal Reserve would have to plan for how policies like raising business taxes will affect the economy.
It would be even harder if the Republicans took over, and a second Trump president might make the Federal Reserve move more slowly, even if the Republicans don’t take over Congress as a whole.
Mills told MarketWatch, “If you are the Federal Reserve, you have a lot more uncertainty about the fiscal path forward if Trump is elected, given what he has proposed on trade, immigration, and deficits.” “While I think there could be a whole variety of outcomes and offsets,” Mills said.
Before the election, buyers in stocks seem to be on edge. The S&P 500 ₹SPX0.41% fell for the second week in a row on Friday, even though it ended the day higher. Overnight, the index went up 23.35 points, or 0.4%, to 5,728.80. The Dow Jones Industrial Average DJIA 0.69% finished at 42,052.19. It went up by 288.73 points, or 0.7%.
It was the biggest drop in the major U.S. stock market indexes last week. On Friday, it went up by 144.77 points, or 0.8%, to end the day at 18,239.92. Even so, it lost 1.5% over the course of the week.
The CBOE Volatility Index VIX -5.53%, also called the “VIX” or Wall Street’s “fear gauge,” was at 21.88, which is higher than its long-term average of around 20. The ICE BofA Move index, which is a similar measure for the bond market, also hit a new high for 2024 above 132 on Friday.
Aside from the Fed and the election, there isn’t much news next week that could affect the market. The most important economic figures coming out of the U.S. will be the latest reading on the ISM service sector gauge. A lot of financial reports from companies are coming out, such as ones from CVS Health Corp. CVS -1.15%, Moderna Inc. MRNA 0.50%, Duolingo Inc. DUOL 0.24%, and others.
On a global level, next week the Standing Committee of the National People’s Congress, which is China’s main legislative body, will meet for five days. Investors will be watching to see if it comes through with the big spending plan that was hoped for to help China’s economy, which is growing slowly.
