Source: Jin10 Data
Author: Wu Yu.

Investors are concerned that the results of this week's US presidential and congressional elections may take several days or even weeks to reveal. However, Tuesday's vote is not the only significant event affecting the market on the calendar. In fact, Federal Reserve Chairman Powell is likely to steal the spotlight at the early morning press conference on Friday.

In a sense, the November Federal Reserve meeting may be a bit anticlimactic, especially compared to the dramatic scenes before the substantial rate cut by the Fed in September.

Data from the CME Group shows that traders believe it is almost certain that the Fed will lower the policy interest rate target by 25 basis points on Thursday.

Few expect Powell to make any major changes to the Fed's monetary policy plans. The Fed will not release new economic forecasts until December.

JPMorgan's Chief US Economist Michael Feroli said discussions about adjusting other policy focuses, such as the pace of Fed balance sheet reduction, may only be revealed in the meeting minutes, which will be published weeks later.

As long as the Fed acts as expected, it can send a reassuring message to investors: despite recent increases in US Treasury yields, rates are still expected to decrease, although the pace of decline remains uncertain.

"Our view on the Fed rate outlook is that the sooner it reaches a neutral level, the better," said Jason Browne, President of Alexis Investment Partners, in an interview. Powell has also stated previously that the Fed hopes to gradually restore its policy rate to a neutral level over time.

Brown stated that the delayed election results may even be advantageous to the Federal Reserve, as it could potentially allow them to more actively reduce borrowing costs while avoiding accusations of playing politics.

Under other equal conditions, lower interest rates should help boost stock and bond prices.

The uncertainty of the election may lead to a greater rate cut.

Brown is not the only one expecting the potential chaos after this week's election to pave the way for more aggressive rate cuts.

Philip Marey, senior U.S. strategist at Rabobank, warned in a report last Friday that market turmoil triggered by the election could prompt the Federal Reserve to make larger rate cuts - either this week or at an emergency meeting in the near future.

"If the market gets out of control, the Federal Open Market Committee (FOMC) might choose to cut rates by 50 basis points as an emergency measure," he said.

Interest rate cuts in December are not set in stone.

Jeffrey Rosenkranz, portfolio manager of Shelton Tactical Credit Fund at Shelton Capital Management, stated that the October employment report last Friday helped counter concerns that the Federal Reserve's aggressive rate cut in September may have been premature.

In other words, according to CME's data, he does not completely believe that there will definitely be two 25 basis point rate cuts before the end of the year, even though interest rates traders have already begun to anticipate such an outcome.

Rosenkrantz stated in an interview, "Powell and his colleagues have always insisted on relying on data, and there is still a lot of data from now until December."

He said that aside from the typical cliché about relying on data, Powell is unlikely to make any commitment, or even imply, how quickly the Fed may start cutting rates from now on.

While Powell is almost certain to be asked about the election, or how the rise in US Treasury yields might affect their thoughts, Rosenkrantz expects Powell to likely dissent.

The power struggle between the White House and Congress could influence the Fed's views.

Regardless of who wins in the election on Tuesday, the Fed may continue to cut rates.

However, Ed Mills, Managing Director and Washington Policy Analyst at Raymond James, said that the election results this week could impact the Fed's decision on the extent and speed of rate cuts.

One thing that can be certain, as Powell likes to remind reporters at press conferences, is that the Fed does not manage fiscal policy. Nevertheless, according to Mills, this is something the Fed needs to consider as it could impact the economy.

A divided government would be the most direct result, allowing the Federal Reserve to continue cutting interest rates.

A situation that could start to complicate matters is if either party ultimately controls both Congress and the White House.

In the unlikely event of the Democratic Party gaining control of the White House, House of Representatives, and Senate, the Federal Reserve would need to anticipate the economic impact of policies such as raising corporate taxes.

A Republican landslide victory would pose a greater challenge, even if the Republicans cannot ensure unified control of Congress. Merely having Trump re-elected as president could lead the Federal Reserve to slow down interest rate cuts.

Mills stated in an interview: 'While I believe there may be various outcomes and offsetting effects, if you were the Federal Reserve, given Trump's proposals on trade, immigration, and deficits, the uncertainty about the future fiscal path would be much greater if Trump were elected.'

Editor/Jeffy