On Thursday 7th of November, we have another FOMC interest rate decision. This is the first one during Trumps victory, just a day after he was elected.
During his previous presidency the rates were somewhat stable, but despite this he had constant pressure on the Fed to lower the interest rate, to make sure the economy in the country grew at a much faster speed. Obviously during his presidency, he and the Fed had an obstacle that no one could have foreseen – the Covid Pandemic – The subsequent measures taken by the Fed and government set inflation moving higher after his term.
What can we expect during the fed meeting in November, as well as December?
Because we are so close to the November Fed rate decision after the election the odds of them changing what is currently expected (cut of 25 bps) is slim. The current expected rate cut is set to take rates between 450-475bps, anything higher or lower would be highly shocking. December is the one to look out for.
The current expected rate in December is 425-450-bps but with President Trumps more aggressive approach to the economy with his tax cuts, deregulations in different sectors and his “America first” ethos, which include putting tariffs on different nations, we can see a smaller cut, to not make the inflation spike. On the other hand, if inflation gets out of control would that force the Fed to act?
Why would the inflation rate spike if Trump goes ahead and implements all of his measures? A tax cut could lead to a higher consumer spending and business investment, causing higher demand in the economy and inflation spike. The deregulation can cause market imbalance and make prices go lower for consumers. As this is harder to manage, inflation can rise to control it. Lastly the tariffs, this will cost businesses more, and that cost will be passed down to consumers in higher costs to buy products, and cause inflation spike.
As mentioned, he has previously shown Trump has pressured the Fed to cut the rates, so he is likely to continue on that path, but to believe that Powell would follow this during his last few years as Chairman is not likely, as he his well-known for his slower approach to cut rates and stubbornness.
