Unadorned Notes: November 7-9, 2024
Fed Cuts Rates Amid Cooling Inflation; Consumer Sentiment Hits 7-Month High; U.S. Fiscal Risks Rise Post-Election; China Unveils $1.4 Trillion Debt Plan; Pelosi Criticizes Biden’s Late Withdrawal
Economics, Finance, and Business
Fed Cuts Rates Amid Cooling Inflation: The Federal Reserve lowered its benchmark interest rate by 0.25 percentage points on Thursday, bringing it to a range of 4.5% to 4.75%, as inflation shows signs of easing. This marks the Fed’s second rate cut of 2024, following a larger reduction in September 2024, and provides some relief to borrowers facing high financing costs. The move comes just after Republican Donald Trump’s re-election, with economists noting that his proposed policies could impact inflation and future Fed decisions. Analysts expect further cuts in December 2024 and early 2025, though Trump’s fiscal and trade policies may complicate this trajectory.1
Powell Says Election Won’t Shift Fed Policy: Federal Reserve Chair Jerome Powell stated that Donald Trump’s election victory will not influence the Fed’s near-term policy direction. Powell dismissed questions on how Trump’s agenda, including tariffs and immigration policies, might affect the Fed’s plans, emphasizing that fiscal policy is beyond the central bank’s purview. He reiterated the Fed’s gradual approach toward a “neutral rate” that neither restricts nor accelerates growth, though the exact level of this rate remains uncertain. Powell also reaffirmed his intention to complete his term, resisting any potential pressure from the White House for him to step down.2
Consumer Sentiment Hits 7-Month High: U.S. consumer sentiment rose to 73.0 in early November 2024, its highest level since April 2024, according to the University of Michigan’s survey. The expectations index increased nearly 6% to 78.5, the best reading since mid-2021, with improved outlooks primarily among Republicans after Donald Trump’s election victory. Republican expectations surged over 17%, while Democrats’ rose slightly, and independents’ sentiment declined to a four-month low. Year-ahead inflation expectations eased to 2.6%, the lowest since December 2020, though long-term inflation expectations remained at 3.1%, slightly above pre-pandemic levels. The Federal Reserve’s recent rate cuts reflect a cautious approach amid shifting economic outlooks.3
U.S. Stocks Hit Record Highs: U.S. stocks ended their best week of the year as the S&P 500 briefly reached 6,000, boosted by Donald Trump’s re-election and a Federal Reserve rate cut. The Dow Jones crossed 44,000 for the first time, closing up 0.6%, while the S&P 500 rose 0.4% to a record high. Optimism over Trump’s anticipated pro-business policies drove gains, though the dollar and Treasury yields gave up some of their post-election spikes. Nvidia joined the Dow, replacing Intel, and Tesla’s market cap surged past $1 trillion as its stock rose over 9%. Meanwhile, Trump Media & Technology Group stock jumped more than 10% after Trump announced he would retain his shares in the company.4
U.S. Fiscal Risks Rise Post-Election: Moody’s warned that U.S. fiscal health is at greater risk following Donald Trump’s election and potential Republican control of Congress, which could expedite his proposed tax cuts and spending policies. These policies are expected to boost economic growth but also widen budget deficits and increase inflation, leading to a selloff in government bonds. Moody’s downgraded the U.S. credit outlook to “negative” last year and may consider a rating cut within 18-24 months if fiscal pressures persist. Trump’s platform includes significant shifts in tax, trade, and immigration policies, raising concerns about rapid and sweeping changes. The U.S. remains Moody’s last triple-A-rated sovereign among the major rating agencies.5
China Unveils $1.4 Trillion Debt Plan: China approved a 10 trillion yuan ($1.4 trillion) plan to allow local governments to refinance their debt, aiming to stabilize an economy weakened by high debt levels and slow growth. The package includes a 6 trillion yuan quota over three years for refinancing “hidden debt” and an additional 4 trillion yuan for special bonds over five years. Finance Minister Lan Fo’an acknowledged that fiscal revenues have fallen short, putting pressure on local governments struggling with debt burdens and basic services. Economists consider the plan modest, with Capital Economics’ Mark Williams noting it represents only 0.5% of GDP over five years, insufficient to significantly boost growth. China’s GDP grew by 4.6% in Q3, slightly above expectations but below the annual target of 5%, prompting limited but targeted stimulus measures.6
Trump Win Boosts Capital One-Discover Deal: Donald Trump’s re-election is expected to ease regulatory obstacles for Capital One’s $35 billion acquisition of Discover Financial Services, positioning it as the largest U.S. credit card issuer by loan volume. Analysts predict a Republican-led Department of Justice is less likely to challenge the merger, which has already cleared most regulatory reviews. Shares of Capital One and Discover surged following the election, reflecting market optimism about the deal’s approval. A Trump administration is also seen as more supportive of broader bank mergers, potentially encouraging consolidation across the financial sector. Industry experts suggest this shift could revive M&A activity among large regional banks that had slowed under stricter oversight.7
U.S. Politics and Geopolitics
Pelosi Criticizes Biden’s Late Withdrawal: Former House Speaker Nancy Pelosi suggested that the Democratic primary could have been more competitive if President Joe Biden had exited the race sooner. In an interview, Pelosi argued that Biden’s swift endorsement of Kamala Harris in July 2024 limited other potential candidates from entering. She praised Harris’s campaign, noting her ability to inspire hope despite limited preparation time. Following Donald Trump’s decisive victory over Harris, Pelosi urged unity and respect for the peaceful transfer of power. Other Democratic leaders, including Rep. Pat Ryan, echoed Pelosi’s sentiment, suggesting Biden’s earlier withdrawal might have altered the election outcome.8
QZ’s Comment: Why blame Joe Biden for not stepping aside when the Democrats never even tried to hold a competitive primary in the first place? They ended up picking Kamala Harris, who is also unpopular, without a primary vote. It’s not hard to see that this undemocratic process is why many people voted against the Democratic Party. “Trump 2024” is a pivotal event in U.S. history, but it’s actually good for American democracy, because if Harris had won, the undemocratic process could have become the norm.
Phillips Reflects on Democratic Loss: Democratic Representative Dean Phillips, who briefly launched a challenge against President Joe Biden before dropping out earlier this year, said he foresaw Donald Trump’s 2024 victory due to Biden’s unpopularity and growing support for Trump. Phillips argued that Democratic Party insiders bear responsibility for Trump’s victory by suppressing competition in the primaries. He cited efforts by Democratic state parties to block primary alternatives and criticized left-leaning media for not platforming diverse voices. While acknowledging some of his own campaign’s shortcomings, he emphasized that many Democratic policies are popular, but cultural stances and restrictive tactics alienated a lot of voters.9
FEMA Worker Fired Over Bias: A Federal Emergency Management Agency (FEMA) employee was terminated for directing relief staff to avoid homes with pro-Trump signs while responding to Hurricane Milton, the agency confirmed. FEMA Director Deanne Criswell condemned the action as “reprehensible” and stated that the matter had been referred to the special counsel. The employee had supervised a team assisting hurricane survivors, and FEMA is revisiting homes that may have been missed to ensure aid delivery. Florida Governor Ron DeSantis criticized the incident as “government weaponization” and announced a state-level investigation.10
Scholz Calls Snap Election Amid Crisis: German Chancellor Olaf Scholz has called for an early election in March 2025 after firing Finance Minister Christian Lindner and dissolving his three-party coalition over disagreements on economic policy. The crisis stems from Lindner’s refusal to suspend debt limits, a key point of contention between his pro-business FDP party and Scholz’s SPD, which favors increased borrowing for economic support. Scholz’s decision raises political uncertainty as Germany faces economic stagnation and a challenging geopolitical landscape following Donald Trump’s re-election in the U.S. The conservative CDU/CSU, led by Friedrich Merz, currently leads in the polls, positioning it as a strong contender. Scholz will seek a confidence vote in January 2025 to formally trigger the election process.11
North Korean Troops Fight Russia’s War: Ukrainian President Volodymyr Zelenskyy confirmed that 11,000 North Korean soldiers are stationed in Russia‘s Kursk region, with some already engaged in combat against Ukrainian forces, resulting in casualties. The deployment marks a significant escalation in Russia’s use of foreign troops as it counters Ukraine’s incursion into Russian territory. Zelensky warned that without increased Western support, North Korea’s military presence in the conflict could expand further.12