With President-elect Donald Trump's impending return to the White House, a slew of new policies adopted by Republican leaders to boost the economy are poised to stall or reverse the Fed's interest rate cuts. It seems to be moving in a gradual and shallow direction. Slowing inflation.
U.S. central bankers remain widely expected to cut the Fed's benchmark interest rate by a quarter of a percentage point to a range of 4.50-4.75% when they conclude their two-day policy meeting on Thursday. .
Futures contracts tied to the Fed's policy rate also factor in a rate cut in December, but the Fed is recalibrating borrowing costs in line with inflation, which is now much closer to its 2% target, and a cooling labor market. As a result, reliability is slightly lower than before. .
However, this could be a significant change for businesses and households considering refinancing debt or taking out new borrowings. Traders are betting now The Fed plans to cut interest rates only twice in 2025, to a range of 3.75% to 4%, which will likely take until July.
If these bets come true, the Fed's current rate-cutting campaign would end more than a year earlier, with rates 1 percentage point higher than most Fed policymakers expected after the first rate cut in September. Probably.
In response to better-than-expected economic indicators since the September meeting, market interest rate expectations were gradually being reset to a gradual rate cut path.
This shift in perception gained momentum as President Trump clinched his victory over Democratic Vice President Kamala Harris just hours after the last poll closed early Wednesday morning.
Trump campaigned on a promise to improve the country's worsening economic situation, with plans to raise tariffs, cut taxes and crack down on immigration.
Economists say such measures are likely to lead to faster economic growth and a tightening of the labor market, raising import costs and putting upward pressure on prices.
Several Wall Street economists on Wednesday cited those risks in deciding whether to cut the Fed rate next year.
Some analysts have warned that the effects of Trump's policies could last for years and it is unclear how fully he will follow through on his promises.
Analysts at Oxford Economics said: “The delayed impact on inflation from tariffs and expansionary fiscal policy will allow the Fed to continue lowering rates until 2026. The central bank will still be able to ease and restrict monetary policy. We need to readjust it to make it more targeted,'' he said, firmly adhering to his own view. The Fed is expected to lower interest rates to nearly 3% by mid-2026.
That view could change as President Trump's intentions become clearer in the coming months, they said.
