Live Markets: When could Fed pause rate cuts? TD says January
11/11/2024 15:50
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WHEN COULD FED PAUSE RATE CUTS? TD SAYS JANUARY
Republican Donald Trump's presidential victory last week has
led traders to adjust for policies that could lead to higher
prices. That has also led to questions on whether the Federal
Reserve is likely to cut rates fewer times than previously
expected.
Fed Chair Jerome Powell last week said the central bank
would begin estimating the impact on its twin goals of stable
inflation and maximum employment once the new administration's
proposals take shape.
Interest rate strategists at TD see the new government,
along with stronger U.S. economic data, as likely to lead the
Fed to pause from January through June. That would follow a
likely 25 basis point reduction in December.
"The Trump victory will likely put upward pressure on
inflation due to tariff and immigration policy. While some
investors may expect the Fed to begin to hike rates in such a
scenario, we would expect the Fed to pause rate cuts as they
assess the impact on inflation and growth," analysts led by
Gennadiy Goldberg said in a report.
The outlook for rates in the second half of 2025 is then
likely to depend on the rate of growth, with TD seeing changes
to tariffs and immigration as likely to create a "stagflationary
drag on the economy" and slow growth momentum.
"This will likely allow them to resume cuts as the
inflationary impact from tariffs would have been seen as
contained. We then expect the Fed to cut rates by 25bp/meeting
until they reach neutral at 3%," TD said.
(Karen Brettell)
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