AXA IM: Fed will cut again by 25 bps

November 4, 2024

Interest Rates Fed

If, as expected, the overall 'labour market cooling' message prevails, the Fed will cut again (by 25 bps), writes Gilles Moëc in his weekly Macrocast. Moëc is AXA Group Chief Economist and Head of AXA IM Research.

Moëc explains that strong-than-expected data in the first half of October initially raised doubts about the expected Fed trajectory. With a disappearance of 50-bps cuts and a higher terminal rate, a debate had emerged on whether the central bank would be able to cut at all in November. The October employment report, when taken together with the job openings and unemployment claims, should help the FOMC deliver a 25-bps cut this week.

'Beyond that, however, we think the overall stance of monetary policy will be very dependent on who wins the elections this week. For about three weeks, the market has been clearly expecting that Donald Trump will be the next president of the United States. The surest signal in our view lies in the behaviour of 10-year yields in the second half of October,' Moëc adds. While October data significantly pushed up 10-year yields, this coincided with Kamala Harris’declining lead in the polls.

'A Trump victory would defeat the old Clinton/Carville mantra ‘it’s the economy stupid’. The picture US citizens should have when voting is of a still robust economy, cooling down enough to kill inflation – a major confidence breaker in the last two years – and allow the Fed to cut interest rates at a fairly fast clip. On this basis, Kamala Harris, as the continuity candidate, should normally do well. The recent deterioration in her lead however suggests this is not enough, or that it may have come too late,' Moëc concludes.