The Fed Won't Cut Rates In September
The Fed Won't Cut Rates In September
We take a look at the data from the Fed rate movements from the nine past election years and flag up our key takeaways.
2024 brings with it two events for the US that don’t usually mix but sometimes simply are forced to - a monetary policy pivot and a Presidential election.
We we’re chatting earlier this week about whether the Fed would in anyway be influenced by the election date in terms of not wanting to make any significant changes in the run up (or immediate aftermath).
Obviously, as Chair Powell mentioned during his testimony on Wednesday, the Fed is not politically motivated in anyway. This is true, but we thought it wise to take a look at the past and see if we can glean anything from interest rate policy changes during previous election periods.
Below we reveal the results and some of our observations from it.
Visualising the data
Below shows the interest rate movements from the past nine elections, from 1988 to 2020. The orange dashed bar is the meeting closest to the election, with five meetings pre and post the date shown.
Immediately, we make our first note from this…
The Fed don’t move in the month before the election
There has only been one instance where the Fed have changed interest rates in the meeting before an election. This was back in 2008, when the base rate was cut from 2% to 1%. Yet that autumn of 2008 was marked by the global financial crisis. the extreme nature of what was unfolding prompted such a large 100bps cut.
If we put this black swan event to one side, the Fed haven’t moved so close to an election. We feel this is really key when we consider 2024. At the moment, the market is expecting between 3-4 rate cuts this year (see below implied rate).
We don’t think that the first cut will come until June, which makes the September meeting (last one before the November 5th election) firmly live.
Yet if history tells us that the Fed don’t really move rates that close to the election, why should this time be any different? We’re not in a must cut stage like ‘08 and the Fed might even walk back on rate cuts between now and then.
Therefore, we don’t feel that the Fed have any reason to cut in September, based on the data we have.
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A move in December is also unlikely
The data also shows us that on only two occasions have the Fed moved rates in the meeting directly following a President being elected. Both occasions were rate hikes.