Trump’s election victory puts US Fed on path for fewer rate cuts
Sign up now: Get ST's newsletters delivered to your inbox
US central bankers are still widely expected to cut the Federal Reserve’s benchmark interest rate when they wrap up their two-day policy meeting on Nov 7.
PHOTO: REUTERS
Follow topic:
NEW YORK – US President-elect Donald Trump’s impending return to the White House appears to put the Federal Reserve on a slower and shallower path for interest rate cuts, with a slew of new policies embraced by the Republican leader poised to juice the economy and stall, or reverse, the slowdown in inflation.
US central bankers are still widely expected to cut the Fed’s benchmark interest rate
Futures contracts tied to the Fed’s policy rate are also pricing in a December rate cut, though with slightly less confidence than previously, as the central bank recalibrates borrowing costs to inflation that is now much closer to its 2 per cent target, and to a cooling labour market.
But in a shift that could be consequential for businesses and households looking to refinance debt or borrow anew, traders are now betting the Fed will cut its policy rate only twice in 2025, lowering it to the 3.75 per cent to 4 per cent range and likely taking until July to do so.
If those bets bear out, the end of the Fed’s current rate-cutting campaign would come more than a year sooner and its policy rate would be a full percentage point higher than most Fed policymakers had projected after their initial rate cut in September.
Stronger-than-expected economic data since the September meeting had been progressively resetting market rate expectations for a shallower rate-cut path. That change in view gained steam as Trump clinched his victory over Democratic Vice-President Kamala Harris
Trump campaigned on promises to fix what he sees as an ailing economy, and plans to impose higher tariffs, reduce taxes, and launch an immigration crackdown to do that. Economists say those policies are likely to lead to faster economic growth and a tighter labour market that, along with the higher import costs, would put upward pressure on prices.
Several Wall Street economists on Nov 7 cited those risks as they pencilled in fewer Fed rate cuts in 2025.
The impact of Trump’s policies could play out over years, some analysts cautioned, and it is unclear how fully he will follow through with his pledges.
“The delay in the inflationary implications from tariffs and expansionary fiscal policy allows the Fed to continue to cut interest rates into 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive,” Oxford Economics’ analysts wrote, sticking to their view that the Fed will bring its policy rate down close to 3 per cent by mid-2026.
That view could change, they said, as Trump’s intentions become clearer over the next few months. AFP
