Share this article: share this article: Share this article: The Fed, which has cut rates before, is expected to cut them less frequently next year, citing unstable inflation and the potential impact of President Trump's upcoming policies.
Chairman Powell is trying to remain neutral, but the Fed and Trump's move President Trump's tough immigration policies and possible new tariffs could lead to a shrinking labor force and rising inflation, putting the Fed in a difficult position.
the U. S. Federal Reserve Board of Governors (Fed) Chairman Jerome Powell is tiptoeing through a minefield as Donald Trump prepares to begin his second term as president. Although the central bank is trying to remain neutral, it is secretly preparing for the economic turmoil that Trump's policies could cause. Fed chief Powell has said the Fed will not speculate on Trump's plans, but insiders say a different game is being played behind the scenes: after Trump's victory in November, Powell went on the defensive, saying the Fed would not adjust rates based on "speculation" about future trade or immigration policies. He insisted the Fed would not speculate.
We are not speculating, guessing or assuming, Powell said at a news conference. But while the dust is settling, the Fed's actions suggest otherwise. President Trump's upcoming term is already affecting inflation forecasts and interest rate decisions.
Last week, the Fed cut rates another quarter percentage point, the first comprehensive rate cut since September. Fed Chairman Powell said the economy still needs help. But forecasts released at the same time as the rate cut point to a more hawkish stance going forward.
only two rate cuts are expected in 2025 and two in 2026. Inflation data doesn't help: the Fed now expects inflation (excluding volatile food and energy prices) to fall to 2.5% in 2025; 15 of 19 Fed officials see the possibility that inflation could exceed their forecasts; only three saw such a risk in September.
President Trump's plans to curb immigration are of particular concern to Fed officials.
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