Federal Reserve Chairman Jerome Powell speaks at a news conference after the Federal Open Market Committee meeting on November 7, 2024 in Washington, DC.
West Village Kent | Getty Images
chairman of the fed Jerome Powell At a press conference on Thursday, he dodged question after question from a press corps eager to know what the central bank leader thought of the president-elect. Donald Trump.
At some point, though, Fed policymakers, economists and analysts will need to consider that the firebrand Republican may have an ambitious economic agenda, not to mention a political one.
Trump was pessimistic about Powell Fed during his first term, Calling policymakers “idiots” One more time Comparing Powell to a golfer Who can’t putt. Powell, who was nominated by Trump in November 2017 and took office the following February, largely dismissed the criticism at the time, and he deflected it again on Thursday.
“I’m not going to get into anything political here today, but thank you everybody,” Powell said after being asked at least six times during the press conference about Trump’s victory and its aftermath. Powell at 3:12 p.m. ET Left and right cut the meeting short, arriving minutes earlier than normal after a politically charged round of questioning.
For the Fed leader, however, dealing with the consequences of a Trump presidency is all but inevitable.
in Anticipated Policy Initiatives What followed were deep tax cuts, expansionary government spending and aggressive tariffs aimed at leveling the global playing field. Trump has also threatened mass deportations of undocumented immigrants, which could alter the labor market landscape.
It’s unclear how Trump’s relationship with Powell will play out this time – Powell’s term as chairman expires in February 2026 – but it could add another wrinkle to the delicate balance the Fed tries to maintain through monetary policy.
Differences in policy and politics
“They’re going to put themselves in a difficult position because communication is going to be more difficult and the new administration is going to have its own way of looking at policy,” said chief economist Joseph LaVorgna. Economist at SMBC Nikko Securities.
He added: “I don’t know if the Fed will take the same approach as the (new) administration, and I think it could create more tensions.”
LaVolnia has a unique perspective on the situation, having served as chief economist at the National Economic Council under Trump. He may return to Washington in 2025 to serve in the White House again.
Like Trump, Lavonia has been a critic of the Fed, albeit for seemingly contrary reasons, as he believed the central bank made a mistake on Thursday. Lower base interest rates A quarter of a percent. LaVolnia instead advocated for the Fed to delay raising interest rates until it has a clearer picture of the chaotic economic situation and uncertainty about the direction of inflation and unemployment.
Trump has historically favored lowering interest rates, although that could change if the Fed cuts rates and inflation rises.
“What if the outlook becomes more complicated going forward?” Lavonia said. “It’s clear to me that they shouldn’t be cutting spending. And then I think President Trump (could) appropriately ask, ‘Why are you cutting when things (inflation) actually don’t look as solid as they did before?’ Expenses? ‘”
Many economists believe there are signs that, at least on a relative basis, Trump’s policies could fuel inflation. how fast prices rise Easing toward the Fed’s 2% target. Some of these economists have begun raising their inflation forecasts and lowering their growth outlook this week, despite considerable uncertainty over what the actual content of Trump’s agenda will be.
If these forecasts come true and inflation picks up, the Fed will have no choice but to respond, possibly by slowing the pace of rate cuts or halting them altogether.
Uncertainty about the future
While Powell sidestepped Trump’s remarks, commentary on Wall Street addressed the potential fallout following the Fed’s decision on Thursday to lower interest rates by another quarter of a percentage point.
“The coming 12 months for Fed policy are indeed going to be a very interesting one,” RSM chief economist Joseph Brusuelas wrote.
Brusulas’ forecast is close to Wall Street consensus and expectations in the federal funds futures market that the Fed will lower its benchmark interest rate by another full percentage point in 2025. But that outlook may change.
“This forecast is based on the current state of the economy, all else being equal,” Brussulas said. “Because we are entering an era of unorthodox economic populism, this forecast will be affected by changes in trade and immigration policies, which may “It will change the path of employment, unemployment and wage pressures, leading to higher price levels.”
Although some economists worry Trump’s policies could have big impactOthers are taking a more cautious approach, given the incoming president’s penchant for the threat of force.
Despite imposing steep tariffs that economists also feared would sharply raise prices, inflation never exceeded 3% at any point during Trump’s term and, in fact, was almost Didn’t break 2%. In addition, Biden has largely maintained Trump’s tariffs and even added some new tariffs on electric vehicles and other products.
Ultimately, the next round of tariffs could add about 0.3% to inflation, Nationwide chief economist Kathy Bostjancic said.
“We expect this should provide the rationale for the Fed to slow policy easing somewhat, but not stop,” she said. “We are calling for a sharp cut in interest rates next year, which would keep financial market conditions accommodative, which should help consumers and businesses borrowing costs and continue to support the labor market and continued expansion.”
Still, regardless of Trump’s wishes, the prospect of the Fed asserting its independence and adjusting policy in either direction raises potential conflicts.
Trump has previously claimed that the president You should at least consult On monetary policy. Still, Fed officials insist on independence from fiscal and political considerations, something that may become more difficult in the coming days.
“The easy cuts are done and maybe December won’t be too controversial,” said Elise Osenbaugh, head of investment strategy at JPMorgan Wealth Management. “After that, I think the Fed will ask the same questions investors are asking —To what extent and when will the incoming Trump administration implement its campaign policy recommendations?”
