Trump enters just as the Fed is shifting its focus
Subscribe to enjoy similar stories. With its second consecutive interest-rate cut this year, the Federal Reserve is attempting to boost the odds of a soft landing. Whether it sticks the landing could shape exactly what kind of economy Donald Trump inherits.
If the Fed is fortunate, dialing back its past rate increases will allow the economy to continue growing steadily with the unemployment rate leveling off at a historically low level and inflation grinding back to the central bank’s 2% goal. If the economy slides into a recession under the weight of earlier increases, Trump would take office as President George W. Bush did in 2001, with the economy heading into a downturn.
Alternatively, any resurgence in inflation could force the Fed to stop cutting rates, raising the odds that the economy faces a hard landing later in Trump’s term. “He’s inheriting a stable economy, an economy with lots of possibility," said Glenn Hubbard, who was a top adviser to Bush. With the Fed cutting rates, “there’s one less headwind." The Fed began raising rates in 2022 at its fastest pace in four decades to combat inflation that had hit a 40-year high.
It paused those hikes in the second half of 2023 and held rates at a two-decade high until September. So-called core inflation, which excludes volatile food and energy prices, stood at 2.7% in September, down from 5.6% two years ago. Analysts on Wall Street are generally less worried about a recession than they were a few weeks ago.
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