According to economists' general expectations and CME's 'Fed Watch Tool,' the Fed is highly likely to announce a continuation of the interest rate cutting process at the end of the rate meeting on Thursday Eastern Time, with economists expecting a 25 basis point rate cut, rather than the unexpected 50 basis point rate cut announced last time. However, given Trump's lock on the US presidential election victory, the economic and fiscal situation has suddenly become much more complex, and the Fed will focus on future monetary policy, possibly preparing for 'expectation management' in advance. In addition, based on the Fed policymakers' desire to stay out of political disputes, Powell may avoid directly commenting on expectations related to President-elect Donald Trump.

Global financial markets almost certainly expect the Federal Reserve's Federal Open Market Committee (FOMC) to lower the benchmark lending rate by 25 basis points on Thursday Eastern Time (Friday early morning Beijing time), as Fed officials try to 'readjust' the monetary policy path for the US economy, which has seen moderate inflation and signs of weakness in the labor market.

However, the market's focus will turn to Federal Reserve Chairman Jerome Powell and his Fed colleagues on how to respond to uncertainty in the evolving economic and fiscal situation, especially the political environment and fiscal expectations shock brought about by Donald Trump's stunning victory in the presidential election.

Global funds will shift their focus from the 'Trump vs. Harris battle' to Federal Reserve Chairman Powell.

During the campaign, Trump promised to be more aggressive in imposing tariffs on US trading partners, deporting millions of illegal immigrants, and continuing the 2017 corporate tax cuts. Once these policies are implemented, they could drive inflation, wages, and federal deficits spiraling upwards.

All of these factors will make the Fed's work more complicated, as Fed officials are working to lower the inflation rate to the 2% target while protecting the American job market. In this difficult task, if Trump once again publicly attacks Federal Reserve Chairman Powell as he has done in the past, the Fed may find itself in an awkward political spotlight, and even be influenced by Trump on some key monetary policy decisions.

In the eyes of some analysts, with Trump's announcement of victory, Powell and other Federal Reserve policymakers may handle the management of "when and how much to cut interest rates" more cautiously, as they need to evaluate how Trump's economic proposals will translate into concrete fiscal policies.

Economist Derek Tang from LH Meyer, a monetary policy analysis company, stated: "They may consider facing higher inflation risks in the coming years due to tariffs or reduced immigration. Their mindset might be 'by cutting rates slightly slower, we can have more time to observe inflation expectations and the actual situation of the labor market.'"

"We believe Federal Reserve Chairman Powell will refuse to make any early judgments on the impact of the presidential election on the economy and interest rates, and will seek to be a stable and calm source." Global policy and central bank strategy director Krishna Guha from Evercore ISI said in a report before the election results were announced.

Krishna Guha added that in order to stay consistent with the vision that policymakers historically want to stay out of political disputes, Powell may take time to elaborate on "the Fed's follow-up study of the new government's plans," and then "continuously refine this assessment in future actual policy making and promulgation."

Therefore, although the immediate priority is to stick to the established policy of cutting rates by 25 basis points to boost US economic growth and avoid pushing the US labor market into a collapse, market attention may shift to the Federal Open Market Committee and Federal Reserve Chairman Powell's views on the future policy path and the new US government under Trump.

The federal funds rate set by the Federal Reserve almost directly determines the overnight interbank lending rate among large US commercial banks, but usually also affects the scale of consumer debt and the pricing curve of many rates such as US 30-year mortgage rates, deposit rates, etc. The current federal funds rate is between 4.75% to 5.0%.

The current market pricing favors another 25 basis points rate cut in December, followed by a pause in January, and then multiple rate cuts until 2025.

The Federal Reserve may be preparing for Trump's return to the White House.

Undoubtedly, if Trump's economic or fiscal agenda - tax cuts, increased government spending, and imposing high tariffs - are successfully implemented, it will have a significant impact on the Fed's policy path. This is because after aggressively raising interest rates to control inflation, the Fed is now attempting to 'adjust policies' by shifting towards rate cuts to boost the US economy. Many economists believe that Trump's new round of isolationist economic measures may reignite the inflation rate. However, although Trump took similar actions in his first term, the inflation rate throughout Trump's entire term remained below 3%.

It is reported that, following Donald Trump's announcement of winning the presidential election, a team of economists from Nomura now predicts that the Fed will only cut interest rates once in 2025 and raise the terminal rate forecast by 50 basis points to 3.625%. Nomura economists including David Seif wrote in a report, 'We expect Trump to fulfill his campaign proposal to increase tariffs, which will significantly boost inflation in the short term and cause moderate slowing of US economic growth.' They had previously expected the Fed to cut rates four times in 2025.

Global Chief Strategist David Kelly from JPMorgan Asset Management Department warned earlier this week that if Trump wins the US election, the Fed may pause its rate cut easing cycle as early as December.

It is worth noting that while rising inflation will disrupt the Fed's rate-cutting path, Trump may force the Fed to cut rates to boost the economy. Throughout his first term from 2017 to 2021, he frequently criticized Powell and the Fed, supporting low-interest rates.

"Everyone is focused on the future rate cut path and whether there will be any revelations." Quincy Krosby, Chief Global Strategist at LPL Financial, said. 'However, there is another question, which is whether they can announce victory against the inflation rate.'

The answers to these questions will largely be left to Powell's remarks in the press conference after the Fed's rate decision.

Although the Fed will announce its joint decisions on rates, it will not provide the latest update of its economic forecast summary, a quarterly report that includes consensus updates on inflation rate, GDP growth, and unemployment rate, and an anonymous rate 'dot plot' showing Fed voting officials' rate expectations. This forward-looking report will be updated next in December.

The CME 'FedWatch Tool' shows that there is considerable uncertainty in the interest rates futures market about the Fed's direction, especially with respect to the December and January policy paths. Some traders are betting that the Fed will pause rate cuts in December or January.

Krosby said, "We will hear the word 'terminal rates' more and more." "If the yield of the 10-year Treasury bonds continues to rise, this term will re-enter the dictionary, and it is not entirely related to economic growth."

So, where will the endpoint be?

After Trump announced his victory, compared to the relatively conservative expectations of Nomura economists, traders in the interest rates futures market are generally betting on a relatively aggressive pace of rate cuts, betting that by the end of 2025, the federal funds rate will reach the target range of 3.75%-4.0%. After a 0.5 percentage point cut in September, this latest expectation is 100 basis points lower than the current level, but lower than the 150-200 basis points rate cut expectation priced in the market before Trump's victory. The pricing in the secured overnight financing rate (SOFR) market is more cautious, implying short-term rates around 4.2% by the end of next year.

"One key question here is, what is the endpoint of this rate-cutting cycle?" Bill English, former head of monetary affairs at the Federal Reserve and current finance professor at the Yale School of Management, said. "Soon, they will consider how the rate-cutting cycle will change in the context of what appears to be a fairly strong economy. They may soon pause rate cuts and see how things develop."

After Trump's announcement of a 'victory,' Nick Timiraos, a Wall Street Journal reporter known as the 'new Fed communicator,' published a latest article stating that Trump's election will not currently affect the Federal Reserve's monetary policy stance. If the Republican Party continues to "sweep" (winning both houses of Congress), the December meeting may amend some wording related to the "rate-cutting basic assumptions."

Timiraos also stated that considering the Federal Reserve's announcement of a 25 basis point rate cut this week is an extremely probable event, the market's attention is turning to how many more rate cuts the Federal Reserve needs before achieving a successful 'soft landing' for the U.S. economy. Timiraos expects Federal Reserve officials to continue giving ambiguous answers this week: it depends on the specific circumstances.

Powell and other Federal Reserve policymakers may also be asked to stop the measures to reduce the amount of bonds on the Fed's balance sheet, that is, Trump may pressure the Fed to stop shrinking the balance sheet.

Since June 2022, the Fed has reduced its holdings of U.S. Treasury bonds and mortgage-backed securities by nearly $2 trillion. Federal Reserve officials generally state that even with rate cuts, the reduction of the balance sheet will continue, although the expectation on Wall Street is that the balance sheet reduction will end in early 2025.

"They are happy to keep this penetration behind the scenes, and they may continue to do so," Ingleich said. "But the next few meetings will arouse a lot of interest, that is, when will they make further adjustments to the speed of tapering?"