What will the Fed do with interest rates and how will Trump react?
2025-01-29
Category: economic

The Federal Reserve is set to announce its next interest rate move on Wednesday, which could prompt a reaction from President&#xA0;Donald Trump, who recently called for the Fed to lower interest rates. Members of the Federal Open Market Committee (FOMC) are expected to leave the target for the benchmark federal funds rate unchanged at a range of 4.25% to 4.5% &#x2013; which would be the central bank&apos;s first pause in this rate-cutting cycle following three consecutive cuts that brought rates down from 5.25% to 5.5%. Inflation has persisted in the economy despite easing considerably from the 40-year high of 9.1% annual inflation recorded in June 2022. The most recent reading of the consumer price index (CPI) came in at 2.9%, above the Fed&apos;s 2% target rate. Due in large part to stubborn inflation, the probability of Fed pause at the January meeting was 99.5%, according to the CME FedWatch tool.&#xA0; The Fed&apos;s anticipated pause could prompt Trump to renew his criticism of the central bank and&#xA0;Fed Chair Jerome Powell, following the president&apos;s call for lower interest rates last week. TRUMP SAYS HE WON&apos;T FIRE FED CHAIR JEROME POWELL  In a speech to the&#xA0;World Economic Forum last week, President Trump said that he plans to bring down the price of oil and, in turn, energy prices to address inflation &#x2013; which he said should serve as the impetus for the Fed to cut interest rates. &quot;With oil prices going down, I&apos;ll demand that interest rates drop immediately. And, likewise, they should be dropping all over the world. Interest rates should follow us,&quot; Trump said. Trump, who nominated Powell to his role as&#xA0;Fed chair in 2017, has criticized the chairman repeatedly over the years. During his first term in the White House, Trump threatened to fire Powell and called him a &quot;bonehead.&quot; While Trump was campaigning to return to the White House last year, he criticized the Fed&apos;s interest rate cuts as &quot;political&quot; &#x2013; though he said in June that he wouldn&apos;t attempt to fire Powell and reiterated that last month. ODDS OF U.S. RECESSION DECLINING: NABE ECONOMISTS  The potential impact of Trump&apos;s economic policies, including his plans for tax cuts and federal spending as well as tariffs on imports, will likely feature prominently when Powell speaks to the press Wednesday after the Fed&apos;s decision is announced. Bank of America Global Research wrote in a note to investors previewing the Fed meeting that they expect Powell&apos;s post-meeting press conference will include a heavy focus on the Fed&apos;s next move as well as how the central bank plans to weigh Trump&apos;s policies as they anticipate future rate cuts or further pauses. &quot;Powell will probably get asked again about the Fed&apos;s response to the Trump policy agenda. We think he will stick to his stance that there is a lot of uncertainty about which policies will get implemented, and the Fed shouldn&apos;t pre-judge or preempt them,&quot; the Bank of America economists wrote. &quot;But he will also probably note that some FOMC members (e.g. Waller and Williams) have already integrated policy into their outlook.&quot; FED MINUTES SHOW POLICYMAKERS SEE IMMIGRATION, TARIFF SHIFTS CREATING INFLATION UNCERTAINTY  Earlier this month, the FOMC released the minutes of its December meeting in which policymakers cited a high degree of uncertainty about the economic impact of potential changes in trade and&#xA0;immigration policy.&#xA0; That uncertainty, along with persistent inflation in the regular economic data releases, suggested that the process of&#xA0;slowing inflation back to its 2% target &quot;could take longer than previously anticipated.&quot; GET FOX BUSINESS ON THE GO BY CLICKING HERE With inflation lingering, Fed watchers expect policymakers will take a slower approach to rate cuts in 2025. The probability of the Fed holding rates steady for its next meeting in March was 68% as of Tuesday afternoon, according to the CME FedWatch tool.