• The US Federal Reserve released on Tuesday the minutes of the Federal Open Market Committee (FOMC) meeting which ended on November 7^th.
• At the meeting, the FOMC voted unanimously to lower rates by 25 basis points to a range of 4.5%-4.75%.
• This marked the second rate cut in the current easing cycle and brought rates down to their lowest level since February 2023.

The minutes noted that inflation has been falling and the labor market remains solid, which should allow for further interest rate cuts, although there was no mention of a timeline or the extent of the cuts. The members felt it appropriate to lower interest rates “gradually” in order to move towards a more neutral monetary policy, which neither boosts nor dampens growth.

The November meeting ended just days after the US election, but the minutes steered away from discussing Donald Trump’s victory. Trump has made negative comments about Fed Chair Jerome Powell, and Powell fired back by saying that by law Trump cannot fire him. Are Trump and Powell headed on a collision course? If so, it could result in instability in the financial markets.

No Surprises from the US PCE Price Index 

The US personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation indicator, came in as exactly as expected on Wednesday. The PCE price index was unchanged in October at 0.2% m/m, in line with expectations. Annually, the PCE price index rose 2.3%, matching the market estimate but above the September gain of 2.1%.

The core rate, which excludes food and energy, gained 0.3% m/m, the same as September and in line with the market estimate. Annually, the gain of 2.8% in October was up from the 2.7% gain in September and matched expectations.

The takeaway from the PCE inflation release is that inflation, although largely contained, remains persistent. The markets are counting on a rate cut in December and the odds of a cut rose after the release, even though both the headline and core readings rose in October. The probability of a 25-bp cut currently stands at 68%, up from 59% just before the release, according to CME’s FedWatch tool.

US Dollar Slides, Stock Market Falls 

The US dollar posted sharp losses against most major currencies following the PCE inflation release on Wednesday. The big movers were the USD/JPY currency pair, which fell by 1.4% on Wednesday and the NZD/USD currency pair, which climbed by 1.1%. 

The Nasdaq 100 Index took as tumble on Wednesday, declining by 178 points (0.85%) and closing at 20,744.

The S&P 500 Index fell 22 points (0.38%) on Wednesday and closed at 5998 points.

The US stock market is closed on Thursday for the Thanksgiving holiday.

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