The Federal Reserve Has Little Room Left for Trump
According to CCTV News Client, on January 8, the Federal Reserve released the minutes of the interest rate cut meeting for December 2024, predicting only a 75 basis point cut for the entire year of 2025, significantly slowing the pace of rate cuts due to high inflation.
This means that after Trump took office, his room for maneuvering on rate cuts has become quite narrow. This is related to the Federal Reserve's submission to Trump's will.
Let's first take a look at the Federal Reserve's rate cut path. On September 18, 2024, the Federal Reserve cut rates by 50 basis points, marking the first rate cut since the increase in March 2020. On November 7, 2024, it cut rates by 25 basis points. On December 18, 2024, it cut rates by another 25 basis points. The Federal Reserve has cut rates by 100 basis points in almost one quarter, which is more than the expected 75 basis point cut for the entire year of 2025. Why is it so awkward?
During his presidential campaign, Trump repeatedly criticized the Federal Reserve's aggressive rate hike policy and threatened to replace Federal Reserve Chairman Powell if he won. On November 6, 2024, Trump announced his victory, and the next day, November 7, the Federal Reserve cut rates by 25 basis points, with analysts generally agreeing that the timing of this rate cut was clearly aimed at pleasing Trump. Then, on December 8, Trump stated that there were no plans to replace Federal Reserve Chairman Powell. On December 18, just a week before Christmas, the Federal Reserve cut rates again by 25 basis points, bringing the federal funds rate to between 4.25% and 4.50%. It can be said that the Federal Reserve cut rates by 50 basis points for Trump, as his policy is to stimulate the economy.
However, further rate cuts are not permitted due to inflation in the U.S. The Federal Reserve's rate cuts to please Trump have led to a resurgence of inflation in the U.S., which has compressed future rate cut space. It is uncertain whether Trump, after taking office, will once again force the Federal Reserve to cut rates in the face of high inflation.