{"id":34446,"date":"2024-11-07T03:12:00","date_gmt":"2024-11-07T09:12:00","guid":{"rendered":"https:\/\/ustower.net\/?p=34446"},"modified":"2024-11-07T04:44:05","modified_gmt":"2024-11-07T10:44:05","slug":"fed-policy-expected-to-collide-with-the-reality-of-a-second-trump-term","status":"publish","type":"post","link":"https:\/\/ustower.net\/?p=34446","title":{"rendered":"Fed policy expected to collide with the reality of a second Trump term"},"content":{"rendered":"\n

The Federal Reserve is set to announce its latest rate decision Thursday \u2014 and while it is widely expected to lower its key rate for the second time since September, Donald Trump\u2019s electoral victory brings a new set of uncertainties \u2014 and, most likely, conflicts \u2014 for central bank policymakers.  <\/p>\n\n\n\n

As of Wednesday, Wall Street traders were nearly unanimous<\/a> that the Fed would cut the federal funds rate, which acts as a benchmark for other borrowing rates in the economy, by a quarter-point. The central bank is looking to dial back the restrictive lending environment it had put in place to rein in the surging inflation that took hold amid the pandemic.<\/p>\n\n\n\n

With that cut, the central bank\u2019s federal funds rate would fall back to about 4.5%.<\/p>\n\n\n\n

Heading into Tuesday\u2019s presidential vote, the Fed would have been justified in celebrating the return of inflation back to its 2% target<\/a>. <\/p>\n\n\n\n

At the same time, unemployment remains subdued at 4.1%. <\/p>\n\n\n\n

In essence, the Fed has satisfied its dual mandate of keeping inflation and unemployment low. <\/p>\n\n\n\n

But the arrival at that finish line now coincides with President-elect Trump\u2019s promise to enact an entirely new fiscal and economic regime<\/a>. While analysts remain uncertain about how exactly that regime could materialize and how severe it might be, markets have already responded by selling off bonds in anticipation of a return to inflation from a combination of Trump\u2019s pro-growth and combative trade policies.<\/p>\n\n\n\n

That would cause the Federal Reserve to pause its current trajectory of steadily lowering interest rates. <\/p>\n\n\n\n

And that, in turn, would run directly counter to Trump\u2019s goal to maintain lower interest rates as part of a policy of accelerating economic growth.  <\/p>\n\n\n\n

\u201cAlthough Trump has shown a consistent preference for easy monetary policy, we believe that the Fed would engage in a less aggressive cutting cycle under a second Trump administration due to the inflationary nature of additional tariffs,\u201d analysts with Nomura Holdings financial group wrote in a note to clients this fall.\u00a0<\/p>\n\n\n\n

Trump and the GOP have denied the tariffs would be inflationary, pointing to Trump\u2019s success in imposing tariffs in his first term without reigniting inflation.      <\/p>\n\n\n\n

\u201cIn his first term, President Trump instituted tariffs against China that created jobs, spurred investment and resulted in no inflation,\u2019\u2019 Anna Kelly, a spokeswoman for the Republican National Committee, has said.<\/p>\n\n\n\n

Yet those tariffs, at $300 billion on selected Chinese goods, were much more targeted than the $3 trillion worth of blanket tariffs Trump is now expected to propose. And the inflationary environment is different now, too: During Trump\u2019s first term, inflation only briefly ever climbed above 2%. <\/p>\n\n\n\n

David Seif, chief economist for developed markets at Nomura, said Fed Chair Jerome Powell is likely to deflect any direct questions he gets Thursday about how he perceives that his role and responsibilities will change once Trump takes office. <\/p>\n\n\n\n

It was Trump who appointed Powell to lead the Federal Reserve in his first term. But Trump has signaled a willingness this year to abandon the long-running principle of maintaining the Fed as an independent body.<\/p>\n\n\n\n

\u201cI think I have the right to say I think you should go up or down a little bit,\u201d Trump said in a Bloomberg News interview at the Chicago Economic Club last month, according to Reuters. \u201cI don\u2019t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.\u201d <\/p>\n\n\n\n

Seif said that if Trump unleashes the full extent of the tariffs plan he has proposed, it would create \u201can acute inflationary event.\u201d While it would not necessarily be permanent, Seif said, it would require the Fed to pause its monetary easing.<\/p>\n\n\n\n

In general, growth is much more stable now. Trump\u2019s policies, Seif said, could end up adding fuel to the fire \u2014 and force the Fed to act in a way Trump would not look favorably upon.<\/p>\n\n\n\n

nbcnews<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Federal Reserve is set to announce its latest rate decision Thursday \u2014 and while it is widely expected to lower its key rate for the second time since September, Donald Trump\u2019s electoral victory brings a new set of uncertainties \u2014 and, most likely, conflicts \u2014 for central bank policymakers.   As of Wednesday, Wall Street traders […]<\/p>\n","protected":false},"author":5,"featured_media":34447,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[1259,2067,1230],"class_list":["post-34446","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics","tag-fed","tag-policy","tag-trump"],"_links":{"self":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/34446","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=34446"}],"version-history":[{"count":1,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/34446\/revisions"}],"predecessor-version":[{"id":34448,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/posts\/34446\/revisions\/34448"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=\/wp\/v2\/media\/34447"}],"wp:attachment":[{"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=34446"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=34446"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ustower.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=34446"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}