The rate decision may seem like a footnote given the uncertain economic terrain the U.S. central bank may soon be navigating under a second Trump administration
The U.S. Fed eral Reserve is expected to reduce its benchmark policy rate by a quarter of a percentage point at the end of its policy meeting on Thursday, a decision that may seem a footnote given the uncertain economic terrain the central bank may soon be navigating under a second Trump administration.
But bond yields continued their recent rise in the wake of Tuesday’s results, and investors now expect the Fed will end up cutting interest rates less than previously anticipated as they take stock of a new economic regime that may mean higher federal deficits, higher growth, and higher inflation in the short run, and also come with longer-term risks.
Trump in his first term was open in calling for low interest rates, eventually branding Fed Chair Jerome Powell an “enemy” because of rate hikes he thought were unnecessarily stifling growth, a turbulent background to a relationship that will be closely watched in coming months. Market confidence in what happens next, however, has begun to weaken, with the Fed now expected to end its cutting cycle as soon as the middle of next year with a policy rate ending in the 3.75 per cent to 4 per cent range.
But monetary policy has been tightened and is being kept tight to return inflation to the central bank’s 2 per cent target – a process of “disinflation” the Fed feels is not yet complete and which Trump may want to see continue given how big a role rising prices played in the campaign.
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