16/09/2008. REUTERS/Jim Young /File Photo
Donald Trump’s election as President of the United States is fueling bets in the financial market that the Federal Reserve will make fewer interest rate cuts next year, with the expectation that a series of new policies when he takes office will stem the tide. downward progress of inflation.
Traders continue to price in a 25 basis point interest rate cut at the Fed’s monetary policy meeting this Thursday (7), and a high probability of another reduction in December, which would put the base rate in a range of 4.25% to 4.50% at the end of 2024.
READ MORE: US inflation rises more than expected in September
But they now see just two more cuts next year, rather than the four that Fed officials had projected in September based on pricing in interest rate futures markets.
This would take the rate to the range of 3.75% to 4.00% in 2025, 1 percentage point below the current level and probably not lower. In September, most Fed officials expected interest rates to end next year below 3.5%.
Trump campaigned on a promise to fix what he sees as a struggling economy, and to do so he plans to impose higher tariffs, cut taxes and slow immigration.
Economists say these policies are likely to lead to faster economic growth and a tighter labor market that, along with higher import costs, would put upward pressure on prices.
But the impact of Trump’s policies may take some time to be felt, some analysts warned.
“The delay in the inflationary implications of tariffs and expansionary fiscal policy allows the Fed to continue cutting interest rates until 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive,” wrote analysts at Oxford Economics.
