WASHINGTON – Donald Trump’s victory in the Nov 5 presidential contest injects deep uncertainties into the US economic outlook that could alter the Federal Reserve’s policy calculus in the months ahead, while renewing questions about how fiercely he might pressure the central bank during his second term in the White House.
In his campaign, Trump promised to wield tariffs more aggressively against US trading partners, deport millions of undocumented immigrants and extend his 2017 tax cuts. Those policies, if enacted, could put upward pressure on prices, wages and the federal deficit, according to many estimates.
That would complicate the Fed’s job as officials seek to lower inflation to their 2 per cent objective while protecting the labour market. Amid that delicate task, the central bank could fall under an uncomfortable political spotlight should Trump follow his previous pattern of publicly attacking Fed Chair Jerome Powell.
Fed officials on Nov 7 are widely expected to lower their benchmark interest rate by a quarter percentage point, a move that will come on the heels of a half-point cut in September. They have projected one more quarter-point cut this year, in December, and an additional full point of reductions in 2025, according to the median estimate released in September.
Policymakers, however, may now approach the question of when and how much to cut more cautiously as they assess how Trump’s economic proposals will be turned into actual policies, said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics.
“On the margin, they might think we might get higher inflation risk over the next few years with tariffs or lower immigration,” Mr Tang said. “Their psychology might be, ‘By cutting a little bit more slowly, that gives us a little bit more time to observe what’s actually happening with inflation expectations and the labor