Fed and Trump Launch New Confrontation Round

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Policy Balance and Confrontation: Fed Chairman Jerome Powell tries to avoid direct confrontation with President-elect Donald Trump while dealing with inflationary pressures from Trump’s potential policies.

Fed Actions: Although the Fed has reduced interest rates by 100 basis points in 2024, new forecasts suggest that rates will only decrease two more times in 2025 due to concerns about more stubborn inflation than expected.

Trump's Policies and Impact: Trump is expected to impose new tariffs and tighten immigration, potentially causing prices and wages to rise in the short term. However, he argues that deregulation measures and boosting energy production will mitigate inflationary impacts.

Fed's Internal Response: Powell urges colleagues to be cautious in their statements, avoiding direct connections between Trump’s policies and the Fed's responses to maintain political neutrality.

Differences from 2018: Compared to Trump’s first term, the current situation differs as inflation has been above target in recent years, making the Fed more cautious in lowering interest rates.

Economic Outlook: Experts suggest that if Trump’s new policies disrupt the labor supply or increase production costs, the Fed may maintain interest rates rather than continue cutting.