US election doesn't change anything for the Fed near term – Commerzbank

Apart from the fact that it has postponed its meeting by one day, the US election won’t change anything for the Fed in the short term. It will continue to decide on its monetary policy independently of the well-known outcome, Commerzbank’s FX Analyst Antje Praefcke notes.

Fed’s independence is in question

“Since its mission is close to being accomplished with respect to inflation, the labor market has been the focus for some time. But here, too, things look favorable for the Fed: it is weakening slowly, but there is no sign of a slump. The unemployment rate has risen moderately and the number of new jobs created is gradually declining. In this respect, the Fed can confidently lower the key rate further in order to get less restrictive.”

“The market is currently pricing in just under 50 basis points by the end of the year. There are good arguments for the Fed to proceed cautiously for the time being and not to consider any further major steps of more than 25 basis points. After all, growth proved to be extremely resilient in the third quarter as well. Moreover, the decline in core inflation has recently stalled. According to our experts, this argues for a cautious approach by the Fed and cuts of only 25 basis points at today's and the December meeting.”

“We have often argued that the markets would react very sensitively to an attack on the Fed's independence, even if it were only through verbal statements, which Trump would certainly make loudly. For the dollar, a Fed that is not ‘allowed’ to react appropriately to inflation risks is the biggest risk. But this issue will in all likelihood not concern us and the Fed until next year.”