Just a few weeks ago, the path ahead for the Federal Reserve looked straightforward: With inflation cooling and the job market slowing, the Fed appeared on track to steadily cut interest rates
FILE - Federal Reserve Chair Jerome Powell listens to a question from a moderator during a Dallas Regional Chamber event in Music Hall at Fair Park Nov. 14, 2024, in Dallas. .
His comments were widely seen as signaling potentially fewer rate cuts in 2025, a view that sent stock prices falling after they had surged with Trump's election.. The president-elect has also proposed a menu of tax cuts and deregulation, which might help spur economic growth but would also fan inflation if businesses couldn't find enough workers to meet increased consumer demand.
Krishna Guha, an analyst at investment bank Evercore ISI, wrote last week that, “We think the looming Trump presidency is helping to drive a change in tone from the Fed — including Powell — towards a warier and more hedged posture on the pace and extent of further cuts.”and a “universal’’ tariff of 10% or 20% on everything else that enters the United States.
Other officials disagree. In a recent interview with The Associated Press, Austan Goolsbee, president of the Fed's Chicago branch, said he thought the neutral rate is much lower than the Fed's current rate. If so, many more rate cuts would likely be appropriate. As is customary for the Fed, though, Powell avoided commenting directly on presidential policies. But he did acknowledge that the Fed's economists are assessing the potential effects of a Trump presidency.
Tax cuts, “starting from an economy close to full employment, will lead to inflation and, by implication, higher Fed policy rates and a stronger dollar,” Olivier Blanchard, a former top economist at the International Monetary Fund and senior fellow at the Peterson Institute for International Economics,
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