New Federal Reserve News Agency: If the Republican Party "sweeps" both houses, the Federal Reserve may revise its "basic assumptions" in December

The Federal Reserve is almost certain to cut interest rates by 25 basis points this week, and investors are paying attention to whether the bank will signal "continued rate cuts in December."

On November 6, after Trump announced his "victory," Nick Timiraos, a reporter for The Wall Street Journal known as the "new Federal Reserve correspondent," published an article stating that Trump's election will not currently affect the Federal Reserve's stance on monetary policy; if the Republican Party subsequently "sweeps" (winning both the House and Senate), the wording regarding "basic assumptions" may be modified at the December meeting.

Timiraos noted that given the almost certain 25 basis point rate cut this week, the market's focus has shifted to: how many more times does the Federal Reserve need to cut rates before achieving a "soft landing" for the U.S. economy? It is expected that Federal Reserve officials will continue to provide ambiguous answers this week: it depends on the specific circumstances.

In Timiraos's view, the uncertainty surrounding the Federal Reserve's rate-cutting path has increased, and officials' concerns may focus on the following four aspects:

Will the election results change the Federal Reserve's policy stance regarding the economic and inflation outlook?

Timiraos stated that unless the Federal Reserve fully understands Trump's specific measures in domestic taxation, tariffs, and immigration policy, the results of the U.S. election are unlikely to change the bank's monetary policy stance at this time.

The article pointed out that if the Republican Party sweeps both the House and Senate, economists may "begin to modify some basic assumptions" at the December meeting. For example, after Trump won the election in 2016 and the Republican Party gained control of Congress, the FOMC meeting minutes showed that Federal Reserve officials and economists engaged in heated debates about the possibility of tax cuts, leading to gradual rate hikes thereafter (though the interest rate level was below 1% at that time).

According to CCTV News, citing several U.S. media reports, on November 5 local time, after the Republican Party won Senate seats in West Virginia and Ohio, they secured 51 seats in the Senate, gaining control of the Senate; the counting of votes for the House of Representatives is still ongoing, and control has yet to be determined .

Is the market overly concerned about the deterioration of the job market?

Currently, concerns about the deterioration of the job market still exist.

The article stated that when the Federal Reserve began its rate-cutting cycle in September, the unemployment rate had risen from 3.7% at the beginning of the year to 4.3%, and some economists worry that a prolonged high-interest-rate environment has harmed the resilience of the job market.

The article also added that while concerns about the job market have somewhat eased, they have not disappeared. Moreover, considering the unknown impacts of hurricanes, strikes, and elections on the economy, the Federal Reserve's grasp of the future interest rate path has become more challenging.

Where will the anti-inflation path lead?

Since the beginning of this year, the "Federal Reserve's preferred inflation indicator," the PCE price index, has steadily slowed down, significantly cooling compared to last year, and is getting closer to the 2% target level However, Timiraos pointed out that if progress against inflation seems to stall and the economy remains resilient, some Federal Reserve officials may propose slowing the pace of interest rate cuts.

What is the neutral interest rate level?

The article notes that before the 2008-2009 financial crisis, the neutral interest rate level was generally recognized to be around 4%. However, after experiencing a prolonged crisis and recovery, the neutral interest rate level may have fallen to around 2%, while the current federal funds rate remains between 4.75% and 5%.

At the September policy meeting, Federal Reserve Chairman Jerome Powell stated that there is still a wide range of uncertainty regarding the assessment of the neutral interest rate, but "we will not return to the era of previously ultra-low interest rates."

Timiraos believes that as the Federal Reserve gradually cuts interest rates, the question of the endpoint will become more complicated. If the economy performs well, officials who believe the neutral interest rate is too high may ultimately wish to slow the pace of interest rate cuts to avoid exceeding the neutral level.