Fed and peers set to go ahead with rate cuts after this week’s US election

New York – The US Federal Reserve and many rich-world peers are widely expected to lower interest rates again in the coming week, right after a US presidential election that may not be decided yet.

Central banks responsible for more than a third of the global economy will set borrowing costs in the wake of the vote, clinging to whatever certainties they can discern on the likely path of American policy for the next four years.

With Vice-President Kamala Harris and former president Donald Trump neck and neck before

election day on Nov 5,

monetary officials from Washington to London may find themselves still in suspense. 

Election aside, US policymakers have already communicated a desire to proceed with a more gradual pace of rate cuts after September’s half-point reduction. Economists widely expect a quarter-point move on Nov 7, followed by another in December – and their conviction grew after data on Nov 1 showed the weakest hiring since 2020.

Fed officials try to steer clear of politics, yet they kicked off a rate-cutting cycle heading into the final stretch of a vote whose outcome may hinge on how voters feel about the economy.

While chairman Jerome Powell will likely stress that the current conditions warrant less restrictive policy when he speaks after the decision, he and his colleagues still risk political backlash.

Bloomberg Economics analysts said: “With polls showing the campaign in a dead heat, the stakes couldn’t be higher. The winner will be able to reshape trade policy – Trump, especially, is likely to make use of this power if he wins.”

Central banks elsewhere are confronting a panoply of risks ranging from slowing economic growth to lingering inflation, even before they contemplate what sort of hit to global trade Trump’s threat of tariffs would effectively entail.

While the Reserve Bank of Australia will probably keep borrowing costs on hold again in a decision on Nov 5, hours before US polls open, other peers are poised to act.

Those in Britain, Sweden, the Czech Republic and elsewhere are expected to cut rates in decisions after Election Day, while Brazilian officials may hike by as much as a half point. 

With such a close-run presidential race, policymakers at the 20 or so central banks setting borrowing costs in the coming week may need to prepare for an extended wait until there is a settled result.

In modern US elections, the losing candidate generally concedes within a day or two, but the 2020 outcome was not called until four days later. BLOOMBERG