Donald Trump’s imminent return to the White House and uncertainty about his policy proposals have begun to put pressure on the US Federal Reserve, raising concerns about coordination between the central bank and the president-elect.
Fed Chairman Jerome Powell acknowledged Wednesday that when rate-setting committee members met to consider the numbers of interest, Trump’s economic platform, which includes the threat of major tariff hikes, an extension of the tax cuts and massive Deportation was considered. They expect a rate cut next year.
“Some people identified policy uncertainty as one of the reasons to write off more uncertainty around inflation,” Powell said after the Fed announced a quarter-point rate cut and hinted at only two cuts in 2025. “
“We don’t know which country will impose tariffs on what, for how long and what size,” he said. “We don’t know if there will be retaliatory tariffs, we don’t know what impact any of this will have on consumer prices.”
Earlier, Powell had declined to comment on how the Fed was thinking about the potential impact of the next administration’s economic policies.
Trump has continued to emphasize that, “used appropriately” the tariffs will be positive for the US economy.
“Our country is losing to everybody right now,” he told reporters at his Florida home earlier this week. “Tariffs will make our country prosperous.”
Given the uncertainty over Trump’s plans, the decision by many policymakers to cut rates so low could be a signal that they are willing to keep rates high if the new administration pursues inflation-boosting policies, said the head of G10 FX Research. Steve Englander said. Standard Chartered Bank told AFP.
He said, “There are many reasons not to be so pessimistic, and yet they chose to be so pessimistic.” “So it’s hard to avoid the signal that maybe they wanted to send a message.”
The US central bank has a dual mandate from Congress to act independently to combat inflation and unemployment. But it still needs to consider how government policies might affect the economy.
strained relationship
Trump has had a long and often tense relationship with Powell, whom he appointed to lead the first independent US central bank, frequently criticizing him during his first term for not cutting interest rates quickly enough. Used to do.
The Republican has also said he has a “better instinct” on the economy than many Fed governors, and argued that the U.S. President should play “at least” a role in setting interest rates – something he currently does. I can’t.
“We have not written explicitly about any kind of disagreement between the White House and the Fed,” Aditya Bhave, senior US economist at Bank of America, told AFP. “But you can easily end up in a world where they want different things.”
However, he added, there is still so much “huge uncertainty” about what policies will be implemented that it is difficult to predict what the impact will be.
There is also deep disagreement on Trump’s side over whether some of the proposed policies will actually increase inflation.
“Fed officials are assuming that Trump’s agenda will cause inflation without any evidence,” said Stephen Moore, an economic adviser to the president-elect and economist at the conservative Heritage Foundation.
“We had almost no inflation in Trump’s first term,” he told AFP in a message.
“And it’s absurd to think that tax cuts drive inflation,” he said, referring to the incoming administration’s plan to extend the tax cuts, which are set to expire at the end of next year.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
