After Donald Trump’s victory, the market focuses on what Jerome Powell will say

Already with the election result digested in favor of Donald Trumpthe market sets its other key objective of the week. It happens that this Wednesday it began the meeting of the Federal Reserve (Fed) in which it will decide on US monetary policy. It is expected, by broad consensus, that the Federal Open Market Committee (FOMC, in English) reduces its reference interest rate.

The market is betting that the FOMC will cut a quarter point (25bp) the federal funds rate at the end of its meeting this Thursday, which would place it in a range of 4.5% to 4.75%, according to the FedWatch tool, which predicts movements based on future federal funds data.

The US economy arrives at this event with Jerome Powellpresident of the Fed, in good condition. The latest reports on the health of activity in the northern country showed that inflation falls to the objective set by the US central bank, while the labor market remains stable, although somewhat weakened. It is worth remembering that the latest employment data was worse than expected due to hurricanes Helene and Milton, that left people (temporarily) out of work and made it difficult to interpret the economic trajectory in the long term.

So, if the Fed’s interest rate movement matches market expectations, Powell’s official statement will be the focus of attention. Northern analysts see the monetary regulator maintaining its stance unless signs emerge that inflation will pick up (which could halt rate cuts) or that employers will accelerate layoffs (which could lead to faster cuts). ).

Election, rate cut and the market

Alejo CostaHead of Economic Research & Strategy at Max Capitalmaintains -in dialogue with Scope– that Thursday’s decision, in which the Fed is expected to cut 25 bp, “is independent of the election result, given that there is room for a cut.”

However, Costa maintains that from December onwards “surely” The decision will be subject to the result. “A Trump victory that slides higher tariffs on imports would generate a stronger dollar and higher inflation, which generates more chances of a pause in December and conditions January to future announcements”, he comments.

For its part, Martin D’Odoricodirector of Guardian Capitalexplains that with Trump the market expects the Fed to keep rates unchanged this week, since what it will analyze is the direction of monetary policy in the context of a new Trump mandate. And he warns that although inflationary pressures decrease somewhat, “the slowdown in employment and economic growth suggest that the cycle of rate increases could come to an end,” he believes.

For D’Odorico, the expectation is that the Fed could keep rates stable, in favor of a cautious stance before making additional decisionsespecially given the volatility and uncertainty associated with the recent election result.

It should be remembered that Trump proposed exerting more influence over interest rate decisions, which was interpreted as pressure for rates to fall. On the other hand, economists predict that the Republican’s economic policies lead to higher inflation than those of Kamala Harris, which could pressure the Fed to set higher rates.

A very favorable 2024 for the market, and 2025?

Already in the final stretch of the year, Mariano Osunafinancial analyst, projects that 2024 will close in a very favorable way, “given that the macroeconomic environment and the business results of the last quarter” served as a kind of finishing touch to the conclusion of the year with 267 companies that presented results and almost 80% of them exceeded expectations.

As Osuna explains well, this brings with it a growth for this third quarter of 3.3%, according to estimates. He adds that “the greatest contributions to this result come from the consumption side.” Well, according to the latest labor data, wage pressures should extend the decline and This situation should maintain confidence in the Fed regarding inflation.

Osuna points out that good economic health and solid growth, which is projected at around 2% by the end of this year and 2.5% by 2025, would drive a rebound in the “small caps” and in more cyclical sectors or of “value”. These include “quality companies” that can adapt well to the current context.

Osuna recalls that the “value” sector is seen as a refuge in the current context due to the stability of high-quality companies and consolidated consumption, such as Pfizer and Coca-Cola, who can better handle volatility. However, it recommends considering long-term topics, such as artificial intelligence (AI) and the health sector, given its projection in the US market.

Finally, the analyst mentions that lowering rates would benefit Latin America by reducing financing costs, which will boost growth, especially in Brazil, Mexico, Chile, Colombia and Argentina. And he concludes that, in addition, China’s recent stimulus could also benefit the region, given its relevance in the export of raw materials.