Federal Reserve officials on Nov. 7 approved a quarter-point interest rate cut, though with President-elect Donald Trump coming back to power in January, the path forward for monetary policy is less clear, experts said.
The Federal Open Market Committee lowered the federal funds rate to a range of 4.5% to 4.75% following its two-day meeting.
“We continue to be confident that with an appropriate recalibration of our policy stance, strength in the labor market and economy can be maintained with inflation moving sustainably down to 2%,” Fed Chair Jerome H. Powell said at a news conference.
At its previous meeting in September, the committee initiated a half-point cut — the first cut in more than four years — and projected further rate reductions through 2025. Specifically, its median projection for the federal funds rate at the end of 2024 was 4.4% in September, down from a projected 5.1% in June. The committee projected the funds rate to drop to 3.4% at the end of 2025 and 2.9% at the end of 2026.
But since the September meeting, the consumer price index rose higher than expected — an annualized 2.4% in September — and the unemployment rate held steady at 4.1% in September and October.
Powell said the committee is on no preset course for monetary policy and will carefully assess incoming data, the evolving outlook and the balance of risks when making decisions.
Also, Trump’s victory on Nov. 5 and his plans for the economy could change the Fed’s calculus, experts predicted.
“The outlook has become murkier with the extent and timing of further cuts hinging on incoming data and Trump's policy approach in 2025,” said David Doyle, head of economics at Macquarie, in a statement prior to the Fed’s announcement.
During the campaign, Trump called for establishing a universal baseline tariff on all U.S. imports of 10% to 20% and a 60% tariff on all U.S. imports from China.
If implemented, economists worry the tariffs will raise prices for American consumers and increase inflation.
Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global Asset Management, said Nov. 6 that adding 10% tariffs across the board could add 1% to inflation. “If you add 1% to next year’s inflation numbers, we should say bye to rate cuts,” he added in a statement. “With higher tariffs, the Fed will not be in a position to cut rates even if the economy is slowing down — and that is a toxic mix for fixed income.”
Powell was asked Nov. 7 if the incoming administration’s economic plans will impact its decision making.
“In the near term, the election will have no effects on our policy decisions,” Powell said, noting he doesn’t know the timing, substance and economic impacts of any potential Trump administration changes.
“We don’t guess, we don’t speculate and we don’t assume,” Powell said.
Trump has also indicated he plans to take a more hands-on approach to Fed policy.
At an event in October, Trump said of rate decisions, “I think I have the right to say, ‘I think you should go up or down a little bit.’ I don't think I should be allowed to order it, but I think I have the right to put in comments as to whether or not interest rates should go up or down.”
In his first term, Trump was a frequent critic of Powell and the Fed’s monetary policy. Prior to Trump's Election Day victory, economists suggested it’d be best for the White House to stay clear of Fed decision-making.
Powell was asked if he would resign if Trump requested it, and he said no. He again said no when asked if he thinks he's legally required to leave if asked. His term expires in 2026.
The committee’s next meeting is Dec. 17-18. Market participants predict there is a 67% chance the committee will initiate another quarter-point cut at that meeting, according to the CME FedWatch Tool that tracks trading in the 30-day fed funds futures.
The committee’s decision was unanimous among its 12 members.
