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Federal Reserve seen on shallower rate-cut path after Trump's election
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Federal Reserve seen on shallower rate-cut path after Trump's election
Nov 6, 2024 7:21 AM

(Reuters) - Donald Trump's election as U.S. president is fueling financial market bets that the Federal Reserve will deliver fewer interest-rate cuts next year, on anticipation that a slew of new policies once he takes office will stall inflation's downward progress.

Traders continue to price in a quarter-of-a-percentage-point interest-rate cut at the Fed's rate-setting meeting on Thursday, and a high likelihood of another reduction in December, which would put the policy rate in a 4.25%-4.50% range.

But they now see just two more rate cuts next year, instead of the four that Fed policymakers had projected back in September, based on pricing in rate-futures markets.

That would bring the policy rate to the 3.75%-4.00% range, a percentage point lower than today, and likely no lower. In September most Fed policymakers expected the policy rate would end 2025 below 3.5%.

Trump campaigned on promises to fix what he sees as an ailing economy, and plans to impose higher tariffs, reduce taxes, and slow immigration to do that.

Economists say those policies are likely to lead to faster economic growth and a tighter labor market that, along with the higher import costs, would put upward pressure on prices.

But the impact of Trump's policy could take some time to be felt, some analysts cautioned.

"The delay in the inflationary implications from tariffs and expansionary fiscal policy allows the Fed to continue to cut interest rates into 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive," Oxford Economics' analysts wrote.

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