What’s at stake with the Fed, now that Trump has won?
Subscribe to enjoy similar stories. When Federal Reserve officials decide this week on the path for interest rates, they will have a new factor to consider: the re-election of Donald Trump. Not only could Trump’s policies affect the path for inflation and growth, his return to the White House also poses questions about the Fed’s freedom to set rates without political interference.
Fed policymakers are still widely expected to cut their short-term interest-rate target, currently 4.75% to 5%, by a quarter of a point at their meeting that concludes Thursday, after a half-point cut in September. Thereafter, the path is less certain. Officials had signaled another quarter-point cut in December and four next year.
But the prospect that Trump could raise tariffs and cut taxes, spurring inflation and economic growth, has prompted some in the markets to reconsider. On Monday, before the election, interest-rate futures reflected a 55% chance that the Fed’s benchmark rate would be below 3.75% a year from now, according to CME FedWatch. That probability had fallen to 34% by midday Wednesday.
Nomura economists said Wednesday that they expect the Fed to proceed more cautiously with rate cuts in 2025, cutting by just a quarter point, “until the realized inflation shock from tariffs has passed." The actual effect of Trump’s policy proposals on growth or inflation are highly uncertain, and would depend partly on the makeup and inclinations of Congress and trade negotiations with other countries. Trump appointed the current Fed chair, Jerome Powell, in 2018, then later demanded Powell stop raising rates, and subsequently that he cut them. Powell resisted those entreaties.
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