Central Bank Story (Assignment for Business & Finance Journalism, 29-11-2024)

The last Fed meeting for this year is coming up on 17-18th of December. Business owners, Investors, policymakers, and workers worldwide are Longing for the last Fed meeting in 2024 to eliminate the uncertainty in the US domestic and Global economy.

In this meeting, people are seeking not only the Fed’s decision on the rate cut in December, but also the recent performance of the Job market, inflation rate, and most importantly how the Fed will defend its independence against Trump’s intervention which is likely to happen in the future.

The non-farm payroll (NFP) data refers to increased employment-population excluding farming. (Coming up on 6th December, 8:30 AM Eastern Time) The US economy is a Consumption-driven economy, higher employment indicates higher disposable, thus stronger demand in the US. A rate cut will decrease the return on deposits, encouraging people to invest their money into other aspects including the stock market and business activities, which will boost the growth of the US domestic economy. As a result, when the NFP is low, it is more likely for the Fed to apply a rate cut.

Jerome Powell, the chairman of the Federal Reserve, was optimistic about the job market. “The comments from Reserve Bank colleagues and CEOs are pretty constructive on the economy. They feel like the labor market is in balance, people feel good about where the economy is, demand is obviously pretty strong.”

However, there is a discrepancy between Powell’s optimistic and NFP data. After greatly surpassing the expectation by 73% with 254K, the NFP was constrained to 12K in October, disappointing the expectation by 89%, indicating that the labor market is still unstable.

“Inflation has eased substantially from a peak of 7 percent to 2.1 percent as of September.”
Inflation is the key to the Fed’s decision, maintaining a reasonable inflation rate can prevent the economy from overheating and stalling. The inflation rate of the US has decreased noticeably after the twice rate cut.

“We are not declaring victory obviously, but we feel like the story is very consistent with inflation continuing to come down on a bumpy path over the next couple of years and settling around 2%.” Said Powell, about his forecast for inflation.

When being asked about whether Donald Trump can fire him, the response from the Fed chair is concise and firm. “Not permitted under the law.”

The disagreement on monetary policy between Trump and Powell can be traced back to Trump’s previous term as the US president. Trump has criticized Powell’s rate hike policy, wanting Powell to looser monetary policy, while Powell wants to maintain his independence.

Although it is illegal to fire the Fed Chair, it is possible for Trump to interfere with the Fed indirectly.

“You could do the earliest Fed nomination and create a shadow Fed chair,” said Scott Bessent, chief executive of the hedge fund Key Square, and One of Donald Trump’s closest economic advisers. “And based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore.”

Donald Trump tried to fire Powell directly during his last presidential term but eventually gave up noticing the potential risk in the market and legislation will be hard to predict. According to Barron’s, Donald Trump may take the advice from Bessent and set up a shadow Fed chair to supersede Powell. This plan is likely to get the support of Congress, especially when Congress is under the control of Republicans. Will Trump go through with it this time? How will the market react to it?

Looking ahead to 2025, we are looking at a world full of uncertainty, the yield curve of the US national debt was inverted, indicating that the market believes that the risk of holding short-term national debt is higher than long-term, reflecting the pessimism sentiment from the market on the short-term economic performance. On the other hand, the stock market and Cryptos are hitting an all-time high every week, especially Bitcoins which have surged over 60% within just two months as of 29th of November (the date of this story written). Investors are worrying about the impending economic recession, while greedily trying to grab a share of the final frenzy at the same time. In these turbulent times, whether the most influential central bank, the Federal Reserve can stand up to provide precious additional certainty, is what all the market participants are concerned.

“US dollar is the currency used in international trade, if they want to maintain such position, the fairness of international trade and financial market, it relies on a rather independent fed.” Said Professor Ruishen ZHANG, from HKU Business School.

Reflection:

The process of studying in this course and doing this assignment is when I develop interest to business and finance journalism.

I found out there is always more to learn, in order to interpret the key event and data correctly. I believe studying my second major and keeping my curiosity in business and finance will help me do that.