All eyes on the Fed today

Unless there is a significant surprise, the Federal Open Market Committee (FOMC) is expected to continue its cycle of rate cuts with a 25-basis-point reduction at the meeting scheduled for November 6-7. However, what investors are particularly eager to understand is how President-elect Donald Trump’s proposed fiscal and tariff policies will impact the FOMC’s outlook on interest rates. It seems likely that FOMC participants are grappling with this very question.

If the election results had been less conclusive, Fed Chair Jerome Powell would likely have taken a more dovish stance during the post-meeting news conference, especially in response to the disappointing payroll data from October and the subdued Beige Book. However, with Republicans expected to take control of the White House and likely both houses of Congress, we anticipate that several participants at the meeting will advocate for caution, supporting a more gradual approach to rate cuts.

What to expect

• The FOMC is expected to lower the federal funds rate target by 25 basis points, bringing it to a range of 4.50% to 4.75%. It is possible that Fed Governor Michelle Bowman will express dissent again, similar to her disagreement during the decision to cut the rate by 50 basis points at the September meeting.
• Financial conditions have tightened significantly since the last meeting, with the rise in long-term Treasury yields and the Dollar largely due to market positioning ahead of Trump’s election victory and the immediate reactions that followed.
• Discussions at the upcoming meeting are likely to focus on two key issues: Has the labor market stabilized? And how does Trump’s victory affect the economic outlook?
• We anticipate that opinions within the FOMC will be divided on the first question. One faction, which likely includes Chair Jerome Powell, may express concern about weakness in professional and business payrolls, as well as the below-par Beige Book report.
• Powell probably believes that the election results do not fundamentally alter the labor market’s short-term outlook. Any expansionary fiscal policies or trade barriers stemming from a new Trump administration may not be implemented until late 2025 or early 2026. In the meantime, the FOMC’s immediate focus is to adjust the policy rate closer to a neutral level.
• This group is likely to argue that October’s weak payroll numbers are primarily influenced by temporary factors, while pointing to the stable unemployment rate — which they expect to fall short of policymakers’ median year-end forecast of 4.4% — as an indication that the labor market remains resilient.

DXY below 105.0

The rally of the US Dollar Index came to a halt at the beginning of the day, dropping to a low of 104.65 after peaking at 105.40 following the announcement of the US election results. Meanwhile, technical indicators remain in the overbought zone, suggesting that the upward momentum is unlikely to continue for much longer.

Investors will be seeking new insights from the Federal Reserve later today. Currently, the next support level is at 104.40. A break below this support would increase downside pressure towards 104.0 for now.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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