On Thursday morning Beijing time, the Federal Reserve will conclude its first meeting during Trump's second presidential term, and Trump has hinted that he hopes to lower interest rates.
If almost all signs so far are accurate, this newly elected U.S. president is unlikely to get what he wants, at least not right now. Policymakers are weighing multiple variables that could complicate policy-making this year, leaving the Fed in a holding pattern.
"They may take a backseat," said Beth Ann Bovino, chief economist at Bank of America. "No one knows what to expect from the White House. Policy measures remain very unclear, but we do know that some proposals already discussed by the White House could stimulate inflation, and I think this will constrain the Fed."
In fact, according to data from the Chicago Mercantile Exchange, market pricing indicates that the Federal Open Market Committee (FOMC) responsible for setting interest rates will keep the Fed's policy rate within the target range of 4.25%-4.5%, which is nearly 100% certain.
Traders expect the Fed to remain on hold until June, during which time Trump's tariffs, regulations, and immigration plans may become clearer. Trump stated on Thursday that he would 'demand an immediate rate cut,' although he has no decision-making power over the Fed's decisions.
The Fed has cut interest rates in its last three meetings, lowering its short-term borrowing rate by a full percentage point. The interest rate decision will be announced at 2 PM Eastern Time on Wednesday.
Former Dallas Fed President Robert Kaplan stated that despite pressure from the White House, the Fed should remain steadfast and pause policy adjustments.
"Keeping interest rates unchanged is the right decision. Progress against inflation may not have stalled but is consolidating, and there are four or five major structural changes currently underway and about to unfold," Kaplan, a current Goldman Sachs executive, stated in an interview with CNBC on Monday. "The right thing to do is to take no action at this meeting."
Kaplan cited three potential changes that could curb inflation: cuts in government spending, regulatory review by the newly established Department of Government Efficiency (DOGE), and Trump's encouragement of increased energy production, along with expected efforts to improve the industry's structural efficiency.
Regarding inflation, Kaplan believes tariffs may push up prices, and the large-scale evictions starting this week could raise labor costs.
Kaplan said: "Trump clearly wants them (Fed policymakers) to speed up their analysis, expedite the evaluation of these new policies, and take action sooner... In this case, the Fed's job is to analyze and not take action until it is confident."
The Fed will not update its quarterly economic forecasts at this meeting, including the 'dot plot' of individual members' expectations for interest rate direction. At the December meeting last year, participants lowered their expected number of rate cuts for this year from four to two, with each cut of 25 basis points.
Investors will closely examine the post-meeting statement, which is expected to show little change, and then turn their attention to the press conference by Fed Chairman Powell half an hour later.
From 2017 to 2021, during Trump's first term in the Oval Office, Powell had a contentious relationship with Trump, and he may be asked to respond to Trump's requests for lower interest rates.
Former Kansas City Federal Reserve Bank President Esther George stated in an interview with CNBC last Friday: "The Fed must adhere to its legal obligations... Congress tells us it is to bring prices down to a low and stable level. In the long run, the Fed must consider these goals and not be swayed by external commentary and political pressure."
The article is reprinted from: Jinshi Data