US Fed rate cut: The US Federal Reserve will meet in the coming week and unveil its first monetary policy decision for 2025 on Wednesday, January 29. This will be the US central bank's first policy verdict after Donald Trump took charge as the 47th US President on January 20. Regarding the current Fed rates, Trump has said that he seeks to lower interest rates by unleashing energy production and would speak to the US Federal Reserve if needed.
"I'll demand that interest rates drop immediately," US President Trump told the World Economic Forum in Davos, Switzerland, in a virtual address. “Likewise, they should be dropping all over the world. Interest rates should follow us all over.” As the US president, Trump does not have a say over the Fed interest rate decisions, a fact that he has frequently criticized.
The US Federal Reserve has a dual mandate to act independently and keep inflation and employment in check, primarily by raising and lowering short-term interest rates. Trump told reporters in Washington that he would like to see interest rates come down "a lot," adding that lower oil prices should help them to fall. "When the oil comes down, it'll bring down prices, he said.
“Then you won't have inflation, and the interest rates will come down.” According to news agency AFP, if the US Fed did not lower the interest rates, Trump said he would "put in a strong statement" and expected the Fed officials to listen to his views. He added that he would consider talking to US Fed chairman Jerome Powell if needed.
Trump's remarks come five days before the Fed's first policy meeting to be held during his administration - on January 28 and 29 - with very broad Wall Street expectations that officials will leave interest rates unchanged until they see inflation make more downward progress toward their two per cent target.
The US Fed last cut its overnight interest rate target by a quarter percentage point at its December policy meeting to between 4.25 per cent and 4.5 per cent. For all of 2024, the US Fed lowered rates by a full percentage point amid easing inflation pressures and a sense among Fed officials that they wanted monetary policy to exert less restraint on the economy's momentum.
According to John Hardy, chief macro strategist at the Denmark-based investment platform Saxo, Trump's presidency could put the independence of the US Federal Reserve at stake. “Pro-American or not, Trump’s intent to cut taxes further would stimulate the US economy and boost growth while expanding already absurdly large US deficits," said the economist.
Global financial advisory giant deVere Group warned traders and investors to prepare for ‘significant turbulence’ as the US Federal Reserve may struggle with the economic consequences of President Trump’s fiscal policies.
Growing inflationary pressures are likely to reappear, and the Fed’s potential response could signal a seismic shift in financial markets. Since taking office, President Trump has doubled down on his ambitious fiscal stimulus agenda, tax cuts, and an expansive tariff regime.
While these measures aim to stimulate economic growth, they have also reignited concerns about inflationary pressures, which remain stubborn. “The battle lines are likely already being drawn between the Fed and the White House, and investors should prepare for the fallout,” warns Nigel Green, CEO of deVere Group.
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“President Trump’s policies are creating the perfect storm of inflationary pressures, and the Fed may have no choice but to act. This could trigger significant market volatility.” The central bank has historically used interest rate hikes as a tool to combat inflation, but doing so in a period of fiscal stimulus could ‘choke growth and unsettle markets," he added.
According to former White House Communications Director Anthony Scaramucci, who was Donald Trump's former communications director during his 2016-2020 term, Trump's presidency now will be a ‘big risk’. It could interfere with the US Federal Reserve's independence.
“If he controls one of the houses through executive action or gets rid of Fed chair Jerome Powell and puts in a loyal stooge, he could get that. That's extremely dangerous for the capital markets," said the former White House communications director. Experts say that the potential battle is not unprecedented.
During his previous presidency between 2016 and 2020, Trump's frequent clashes with the US Fed over monetary policy were also well-documented. In 2018 and 2019, Trump openly criticized the US central bank for raising interest rates, which he argued stifled the economic growth.
“Trump’s unconventional approach included publicly pressuring the US Fed to lower rates and adopt a more dovish stance. While some saw this as a way to support his administration’s pro-growth agenda, others viewed it as challenging the US Fed’s independence,” said Nigel Green.
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