The latest meeting minutes released by the Federal Reserve send a heavy signal.
At 3am Beijing time on November 27th, the Federal Reserve released the minutes of its November monetary policy meeting. The minutes show that after Trump was elected as the President of the United States, the direction of the Federal Reserve seems to have changed, with "multiple" decision-makers supporting a more gradual interest rate cut, and even officials mentioning the possibility of suspending action for the first time when discussing decision risks. Analysts say that the Federal Reserve's minutes suggest that if the progress of downward inflation stagnates, they will be more cautious about cutting interest rates.
For the outlook of the December interest rate meeting, the minutes mentioned that the majority of respondents in the primary trader survey and market participant survey of the open market sector had a modal expectation of a further 25 basis points interest rate cut in December.
At the market level, the three major US stock indices collectively closed higher overnight, with the S&P 500 index rising 0.57% and the Dow Jones Industrial Average rising 0.28%, both reaching historic highs; The Nasdaq rose 0.63%. It is worth mentioning that due to Trump's tariff threat, the US stock market's automotive sector suffered a collective decline, with General Motors and Ford Motor closing down significantly by 8.99% and 2.63% respectively.
The latest announcement from the Federal Reserve
At 3am Beijing time on November 27th, the Federal Reserve released the minutes of its November monetary policy meeting. The minutes show that after Trump was elected as the President of the United States, the direction of the Federal Reserve seems to have changed, with "multiple" decision-makers supporting a more gradual interest rate cut, and even officials mentioning the possibility of suspending action for the first time when discussing decision risks.
At this meeting, the Federal Reserve announced a 25 basis point interest rate cut, lowering the target range for the federal funds rate to 4.5% -4.75%. This is the second interest rate cut since the 50 basis point cut in September.
The minutes stated that during the discussion of the outlook for monetary policy, attending Federal Reserve officials anticipated that if the data remained consistent with overall expectations - with inflation rates continuing to approach 2% and the economy still approaching maximum employment rates - then over time, a gradual shift towards a more neutral policy stance may be appropriate.
Some attending officials believe that the downside risks of economic activity and the labor market have weakened, and monetary policy needs to balance the risk of policy relaxation too quickly, otherwise it will hinder the further development of inflation; At the same time, we should also pay attention to the risk of slow relaxation, otherwise it will excessively weaken economic activity and employment situation.
This minutes show that unlike the previous minutes, when discussing risk management issues, some attending officials pointed out that if inflation remains high, the Federal Reserve may temporarily suspend easing policy rates and maintain them at a restrictive level.
Most attending officials believe that the uncertainty of the neutral interest rate level complicates the Federal Reserve's assessment of the degree of monetary policy restrictions, and therefore 'gradually reducing policy restrictions is appropriate'.
Nick Timiraos, a senior journalist known as the "New Federal Reserve News Agency," published an article stating that the Federal Reserve's minutes suggest that if the progress of downward inflation stagnates, they will be more cautious about interest rate cuts.
For the outlook of this year's final interest rate meeting, the minutes mentioned that the majority of respondents in the primary trader survey and market participant survey of the open market sector had a modal expectation of a further 25 basis points interest rate cut in December.
The minutes state that almost all attending officials believe that the downside risks to US employment and growth have "decreased" and that the job market "shows no signs of rapid deterioration". In October, the number of non farm employment increased by only 12000 people, but it is unclear how much temporary factors such as hurricanes and strikes accounted for.
The minutes indicate that the broader situation suggests that the US labor market is gradually cooling down, but still on a solid foundation, with low unemployment rates and limited layoffs. Inflation has significantly slowed down from its peak, but core indicators excluding food and energy remain 'high'.
When discussing the prospects of monetary policy, this meeting also emphasized that the interest rate path is not predetermined, but depends on data, and many people emphasized that when evaluating data, attention should be paid to potential economic trend changes.
The minutes also wrote that some decision-makers believed that the interest rate of the Federal Reserve's monetary policy tool, the ON RRP, should be adjusted in the future to make it the lower limit of the policy rate, the federal fund rate.
At the meeting, Federal Reserve staff pointed out that lowering the ON RRP rate by 5 basis points would bring the ON RRP rate in line with the bottom of the federal funds rate target range and may exert some downward pressure on other money market rates.
In response, Timiraos commented that Federal Reserve officials discussed lowering the ONRRP rate by 5 basis points at a future meeting, which would be a technical adjustment.
It is worth mentioning that during the November interest rate meeting, Trump had already confirmed his victory in the US election, but the minutes did not directly mention the impact of Trump's policies on the economy and inflation.
US stocks rise across the board
At the market level, the three major US stock indices collectively closed higher, with the S&P 500 index rising 0.57% and the Dow Jones Industrial Average rising 0.28%, both reaching historic highs; The Nasdaq rose 0.63%.
Among them, most of the "Technology Seven sisters" in the US stock market rose, only Tesla ended down, Nvidia rose 0.62%, Google A rose 0.88%, Apple rose 0.94%, and Meta rose 1.49%. Amazon rose 3.19% and Microsoft rose 2.12%.
Most Chinese concept stocks closed lower, with the Nasdaq Golden Dragon China Index falling 0.84%. Among them, NIO fell more than 7%, Jike fell more than 4%, Vipshop fell nearly 3%, Ideal Auto, Ctrip, Tiger Securities, and Zhihu fell more than 2%, and Xiaopeng Motors, Bilibili, and Pinduoduo fell more than 1%; NetEase rose 0.95%, Baidu rose over 1%, and Miniso rose 2.96%.
It is worth mentioning that due to Trump's tariff threat, the US stock market's automotive sector suffered a collective decline, with General Motors and Ford Motor closing down significantly by 8.99% and 2.63% respectively. Mexican President Simbaum mentioned that Mexico's main exporters to the United States are General Motors, Stellantis, and Ford.
On November 26th Eastern Time, Jan Hatzius, Chief Economist of Goldman Sachs, pointed out in a report that Trump's tariff proposal will significantly push up consumer prices in the United States.
Hatzius explained, "Based on our experience, for every 1 percentage point increase in effective tariff rates, the Federal Reserve's preferred inflation indicator - the core PCE (Personal Consumption Expenditures Price Index) - will increase by 0.1%. Based on this, it is estimated that if these tariff proposals are implemented, core PCE inflation will increase by 0.9%
According to Goldman Sachs' calculations, countries that Trump claims will increase tariffs account for 43% of the total US goods imports, and these tariffs will bring in less than $300 billion in revenue annually.
The inflation indicator favored by the Federal Reserve, the October Consumer Expenditure Price Index (PCE), will be released on November 27th Eastern Time. Currently, Wall Street generally expects that the upcoming latest inflation data may show that US price pressures remain stubborn, which will strengthen the Federal Reserve's cautious attitude towards future interest rate cuts.