- Markets are now focusing on the Federal Reserve’s upcoming FOMC meeting, where another interest rate cut is anticipated.
- Trump’s policies, including potential tax cuts and import tariffs, may pressure the Fed’s future decisions on interest rates.
- Increased federal spending under Trump’s plans could lead to inflation risks, potentially complicating the Fed’s rate policy in the long term.
Only a day after Donald Trump beat Kamala Harris to become the United States’ next President, the market is now beginning to turn its attention to another major economic event happening later this week.
On November 6-7 – the Federal Reserve will host another FOMC meeting, and up until now expectations were of another interest rate cut, this time by a quarter point. However, stipulations of a future Trump government, based on the campaign points he rode, could affect the state of the Federal Reserve as we know it.
Since 2021, Trump has been an open critic of Jerome Powell, often calling him “very weak” on Twitter. After taking office in January, Trump will have the power to replace one Federal Reserve member – including Powell – but, will he?
Expectations for this upcoming FOMC meeting are still heavy on another interest rate cut. It would be the first time the FED cut interest rates consecutively in over 4 years.
But moving forward, Trump’s government could also lead the Federal Reserve to rethink its policy. According to the Republican’s campaign plan – he will look to double down on the tax cuts he implemented in 2017, but this time covering even larger demographics.
Also, Trump spoke a great deal about raising import tariffs on several countries, including a 70% tariff on Chinese goods.
While these plans would likely have a positive impact on the domestic economy, the side effect would be higher Federal spending – which would put the Federal Reserve in a tight spot. This scenario would reawake inflation risks due to the increased spending, and it could prove harder to significantly lower interest rates in the future.
However, this much is talk for the future. As of today, the 2.4% inflation rate means that the Fed is creeping close to reaching its target 2% target, meaning that in all likelihood we will see a 0.25% interest rate cut in a couple of days. Whether the Fed will see difficulty in dealing with inflation risks during the Trump presidency or not remains to be seen.
