Spot gold surged by 50 dollars! Wall Street fully interprets the Federal Reserve's interest rate cut in November

After the Federal Reserve decided to cut interest rates by 25 basis points on Thursday local time, Fed Chairman Jerome Powell stated that he would not resign if Trump asked him to.

At the post-meeting press conference, when asked if he would step down if Trump requested it, Powell firmly replied, "No." He also stated that it is "not legally permissible" for any Federal Reserve Board leaders, including himself, to be dismissed or demoted. Previously, CNN reported that a senior advisor to Trump revealed that Trump might allow Powell to complete his remaining term. Federal Reserve observers had speculated that if Trump forced Powell to resign, Powell would step down before his term ends in May 2026. However, Powell's response left no doubt in the market that he would serve until the end of his term. Analysts noted that Powell was once a lawyer. Powell is very firm against any political threats facing the Federal Reserve. He is clearly prepared to withstand any political pressure they face. Some analysts also suggested that it remains to be seen whether Trump himself will respond to Powell's comments about the president's lack of authority to dismiss the Fed chair or vice chair.

Powell stated that the U.S. presidential election will not have "any impact" on the Fed's policy decisions in the short term, and noted that it is still too early to know the timing or content of any potential fiscal policy changes. Powell said the Fed could adjust policy constraints more slowly or more quickly. If the economy remains strong and inflation does not fall back to 2%, adjustments could be made more slowly. If the labor market deteriorates, action may be taken more quickly. "As we approach neutral interest rates, it may be necessary to slow the pace of rate cuts."

This time, the Federal Reserve officials unanimously decided to lower the federal funds rate to a range of 4.5%-4.75%. This marks the second consecutive rate cut by the Fed following a significant 50 basis point cut in September, further solidifying the foundation for U.S. economic expansion. A notable difference this time is that Fed Governor Bowman did not dissent (she opposed the 50 basis point cut last time).

Powell said, "Further adjustments to our policy stance will help maintain the strong momentum of the economy and labor market, and will continue to drive inflation progress as we gradually move toward a more neutral stance."

His remarks came after Trump's re-election this week, during which Trump had publicly criticized him and explored the possibility of firing him during his first term in the White House. Trump also promised to deploy more aggressive tariffs, crack down on immigration, and extend tax cuts—policies that could exert upward pressure on prices and long-term interest rates, prompting the Fed to reduce the scale of rate cuts.

Powell said, "We do not know the timing and substance of any policy changes. Therefore, we do not know what impact these policies will have on the economy, specifically whether and to what extent these policies will affect our goals—maximum employment and price stability."

When asked whether the Fed is considering pausing rate cuts in December, Powell stated that as officials shift the monetary policy stance toward neutral, they have not yet made a decision on what policy action the central bank will take in December He stated: "In the face of uncertain prospects, we are prepared to adjust our assessment of the appropriate pace and ultimate goals of monetary policy. If the labor market deteriorates, the central bank will be ready to act more quickly. Slowing the pace of reducing restrictive interest rate positions may also be appropriate."

The Federal Open Market Committee (FOMC) stated in a statement released on Thursday that the committee continues to believe that the risks to achieving its employment and inflation goals are "broadly balanced." "The economic outlook is unclear, and the committee is concerned about risks on both sides of its dual mandate."

Although policymakers noted that there has been "progress" in achieving the inflation target, they no longer express "greater confidence" that inflation can sustainably move towards 2%. This is the most significant part of the statement. However, Powell stated that the omission of the wording regarding confidence in the statement does not imply any indication of inflation stickiness, "We believe now is not a good time for a lot of forward guidance."

The committee also slightly modified its wording regarding the labor market. The Federal Reserve stated in the announcement: "Since earlier this year, labor market conditions have generally eased, and the unemployment rate has risen, but remains low." Powell described the labor market as "robust."

After the Federal Reserve's easing cycle began with massive interest rate adjustments, policymakers indicated that they tend to take a more cautious and careful approach to future rate cuts. Powell reiterated that officials are not in a hurry to lower borrowing costs.

Powell stated that the Federal Reserve is monitoring the rise in long-term bond yields and attributes it to an enhanced view of economic growth. He also mentioned that bond yields would have to remain high before the Federal Reserve makes a conclusive assessment of the impact of bond rates on the economy. The futures market indicates a high likelihood of a similar magnitude rate cut in December. U.S. interest rate futures price in a further 67 basis points cut by the Federal Reserve in 2025.

Wall Street Interpretation

During the announcement of the interest rate decision and Powell's speech, spot gold surged by $50 intraday, an increase of 1.88%. The intraday increase in spot silver expanded to 3%, breaking through $32 per ounce. The dollar index fell by 80 points, marking the largest drop since August. The dollar against the yen fell by 1% intraday. U.S. stocks continued their post-election rally, with the S&P 500 index approaching 6000 points, setting the 49th record of the year.

"The Federal Reserve's mouthpiece" Nick Timiraos stated that the Federal Reserve lowered rates by 25 basis points as expected. This decision was unanimously passed. The changes in the FOMC's statement were minimal.

Analyst Smialek noted that the Federal Reserve's statement offered almost no clear signals regarding future rate cuts and did not comment in any way on this week's U.S. elections. This is not surprising, as the Federal Reserve operates independently of politics and tries to avoid involvement in significant partisan moments Diane Swonk of KPMG stated that the Federal Reserve may cut interest rates in December, but it seems they want to "maintain options" in the future. She mentioned that one of the main challenges the Federal Reserve currently faces is "communication," as this is not a time when they can provide "a lot of forward guidance."

Whitney Watson, co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, expects the Federal Reserve to cut rates by 25 basis points in December. Watson stated, "However, stronger data and uncertainties in fiscal and trade policy mean that the risk of the Federal Reserve choosing to slow the pace of easing is increasing. The word 'skip' may enter our vocabulary in 2025."

Brian Jacobsen, chief economist at ANNEX Wealth Management, indicated that the Federal Reserve did not add any drama this week. A 25 basis point cut still keeps the federal funds rate in a restrictive range, but it is no longer as tight as before. Although the Federal Reserve stated that the risks to its employment and inflation targets are roughly balanced, they might want to italicize "roughly." Because the election is influential, we can see slight improvements in economic growth relative to the Federal Reserve's forecasts, but inflation has also risen slightly relative to their forecasts, necessitating a more gradual pace of rate cuts. They do not need to retract their rate cut plans, but they also do not need to accelerate the pace of cuts."

Matthew Luzzetti, an analyst at Deutsche Bank, remarked that today's decision by the Federal Reserve was "easy," but he is less certain that December will be as straightforward. He mentioned that after this rate cut, next month's decision may be "contentious," as rates are approaching neutral. Therefore, for some, slowing the pace of rate cuts may make more sense.

Capital Economics assessed that today's Federal Reserve rate decision is hawkish. "Considering all factors, we now expect the Federal Reserve to end this easing cycle earlier than previously anticipated. We expect an additional 25 basis point cut at each meeting before May next year, with rates bottoming out between 3.50% and 3.75%, which is 50 basis points higher than our pre-election forecast."

Samuel Thomas, an analyst at Pantheon Macroeconomics, stated in a report that the Federal Reserve is "stalling" until the fiscal outlook becomes clearer. He noted that the Federal Reserve cut rates by 25 basis points as expected, and the statement was almost a "replica" of the September statement. Nevertheless, Thomas mentioned that Federal Reserve officials will have to make a temporary assessment of the new fiscal policy outlook next month when they release their quarterly economic projections. Pantheon Macroeconomics expects the Federal Reserve to further cut rates by 25 basis points in December and hint at an additional 100 basis points cut in 2025 Dan Siluk, an analyst at Janus Henderson Investors, stated in a report that the removal of the wording "more confident" regarding "inflation is sustainably moving towards 2%" in the FOMC statement indicates that the Federal Reserve needs to proceed with caution in the future. This change may reflect a more cautious or moderately optimistic attitude among officials regarding the inflation trajectory towards the Fed's 2% target. By removing the phrase "greater confidence," the Federal Reserve may also be signaling its readiness to respond flexibly to upcoming data.

Jackson Garton, co-chief investment officer at Makena Capital Management, noted that Powell remained silent on providing new forward guidance during his press conference and did not comment on changes to the economic outlook summary. Short-term U.S. Treasury yields showed little change during Powell's remarks. Garton still believes that the Federal Reserve may choose to cut rates in December, but he is uncertain. He stated, "I think the likelihood of continuing to cut rates by 25 basis points at the next meeting is over 50%, but I'm not 100% sure."

Lindsay James, an analyst at Quilter Investors, mentioned in a report that the pace of future rate cuts by the Federal Reserve seems far less certain than the widespread expectations prior to the decision. "The volatility in the labor market data casts a shadow over the outlook, as does Trump's victory," the investment strategist said, "compared to what many initially hoped for, the expectations for future rate cuts by the Federal Reserve are being significantly reduced."

Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, stated that considering the re-inflation space of fiscal stimulus policies next year, the Federal Reserve's terminal rate may bottom out at a level higher than currently priced. In fact, if the re-inflation shock and inflation driven by tariff policies return, rate hikes may have to be put back on the agenda. The Federal Reserve cut rates by 25 basis points as expected and adjusted its wording to be more cautious about the future path of monetary policy. Even in December, due to Powell's abandonment of any guidance on the pace and scale of rate cuts, data constraints have risen a notch.

Aditya Bhave from Bank of America stated, "We believe Powell's remarks are overall dovish, as he repeatedly indicated that a rate cut in December remains his baseline judgment. Given that the policy mix will not change for some time, we remain comfortable with the call for another 25 basis point cut in December."

Tiffany Wilding from Pacific Investment Management Company noted, "Powell mentioned that the downside risks to economic activity have diminished while also emphasizing that long-term inflation expectations remain stable. This suggests that the Federal Reserve will continue to adjust policy rates in a gradual manner and has opened the door for a possible pause in December."