What is the Fed's next move?
Steve M. Wyett, CFA
Chief Investment Strategist | Public Speaker | Market Analyst
This week's commentary is provided by Mark Gibbens, CFA, CAIA, CFP®, Investment Strategist at BOK Financial.
There has been much discussion on the trajectory of Fed policy as the Trump administration comes into office. Probabilities have recently shifted in the Fed Funds Futures market back toward a December cut. There has been mixed economic data, and while the domestic economy looks relatively healthy, the Fed remains in a somewhat hawkish position given the current Fed Funds range of 4.50% to 4.75%. Therefore, we think the most likely result is a 0.25% cut.
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Now, as we come into 2025, there are many dynamics at play, particularly with the incoming administration. How policies regarding tariffs and taxes will be implemented are of particular interest, as well as the issues of immigration and regulation. Arguably, the most important issue right out of the gate will surround tariffs. Tariffs, all else equal, result in higher prices, yet we don’t know the extent of tariff policies and the subsequent likely effect on price levels until the actual policies are known. The recent news that Scott Bessent will be nominated for the position of Treasury Secretary has managed to calm the nerves of Wall Street, particularly concerning the tariff issue. With so much policy uncertainty, the Fed will likely pause rate cuts at the January FOMC meeting, and there will be fewer cuts than previously thought in 2025.
While policy uncertainties could lay the groundwork for some consternation in the equity markets, we still favor the outlook for the stock market in the short and the longer terms. However, seeing a pullback during the transition phase to the new administration would not be surprising. As the old saying goes, investors fear uncertainty.
We enjoyed the Thanksgiving holiday season with our friends, families, colleagues, and clients and hope all our readers enjoyed it as well.