We see 3 key takeaways from Nov's FOMC. 1) It is reasonable to expect another 25 bp rate cut at the December meeting. 2) We do not believe the new administration will try to eject Powell early, but if it did, Powell would fight to stay in place for his whole term. 3) The December policy projections (dots) will likely reflect neither strong assumptions about new tariffs and their economic impact nor changes in the broad fiscal policy outlook. December is far too early for the FOMC to assess the timing and substance of any new policies. Powell stressed how much inflation has slowed and the Committee’s confidence that it would continue to move towards the 2% target, despite some month-to-month bumps. Moreover, he argued that housing services, the stickiest component of core inflation, would be catching up (that is, catching down) to the slowing in market rents. Hence we believe FOMC might continue normalisation in near future by cutting 25 bps in Dec meeting. We don’t think Dec DOTS will materially be much different from Sep DOTS without knowing in detail the exact plans, timelines of Trump’s policies such as tariffs, corporate tax cuts & immigration control. With all these uncertainties, December is too soon for the FOMC to start signaling a different path, even though the incoming administration may execute quite dramatic fiscal policy changes that eventually produce changes in monetary policy. We believe that current market pricing has already priced in much of expected impact of Trump’s policies if enacted in full. There could be tactical opportunities in receiving 1yr1yr Swaps around 3.95 levels (CMP 3.83) or in 2yr US SOFR receive position near 4.15 levels (CMP 4.05). We are keeping a close eye on these two trade ideas to initiate soon at mentioned levels.
