• The Fed unanimously cut interest rates by 25 basis points (bps), steering clear of speculating on the economic impact of Trump's victory. This aligns with the house projections, market expectations, and economists' consensus estimates.
• Fed speak: The statement saw minor adjustments, with the Fed noting that risks to its goals remain "roughly in balance" and that labour market conditions have "generally eased." Notably, the phrase "gaining greater confidence" in inflation's progress toward the 2.0% target was removed, with inflation described as having made "progress" rather than "further progress." While subtle, this change signals the Fed's attentiveness to recent upticks in core CPI and rising uncertainties as 2025 approaches.
• Press conference: Fed Chair Jerome Powell stated that "even with today's cut, policy is still restrictive," hinting at further rate cuts despite inflation risks and a relatively resilient macroeconomic backdrop. Powell clarified that "in the near term, the election will have no effect on our policy decisions," indicating the Fed may wait until 2025 to consider in any fiscal shifts under Trump. He reaffirmed a meeting-by-meeting approach. We continue to anticipate that incoming data could support a gradual pace of rate cuts amid a slowing economy.
• Fed policy outlook: Despite weak October jobs data and signs of contained inflation, Trump's return poses a critical risk. While the Fed is unlikely to react pre-emptively to Trump's anticipated fiscal expansion until 2025, they may hint at potential risks in the December FOMC meeting. We expect the Fed to proceed cautiously to avoid policy reversals if inflation resurges. Economic deceleration and a cooling labour market may justify another 25 bps cut in December, though the Fed could pause in January next year, limiting cuts to only once or twice in 2025.
• US Treasury outlook: With investors demanding a higher term premium amid expected volatility under Trump's presidency, we anticipate the 10-year yield to remain elevated, potentially settling at 4.25% by year-end, up from our previous 3.60% forecast. Rising macro uncertainties and a more restrained Fed cutting cycle in 2025, alongside concerns over fiscal sustainability and inflation, could drive yields even higher.
• BNM Policy outlook: While Trump's recent election victory brings new uncertainty and potential volatility into the global economy, there is a stronger reason to expect BNM to maintain the policy rate at 3.00% through 2025, balancing economic growth with inflation risk.

Source: Kenanga Research - 8 Nov 2024