Amara Omeokwe | (TNS) Bloomberg News
Donald Trump’s victory in Tuesday’s presidential contest injects deep uncertainties into the U.S. 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 U.S. 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% objective while protecting the labor 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 Thursday 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,” 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 market.’”
Powell will almost certainly face questions about how the election affects the Fed’s outlook when he holds a press conference at 2:30 p.m. Thursday following this week’s meeting of the Federal Open Market Committee.
The Fed chair frequently drew Trump’s ire during his first presidential term. Those barbs have continued, with Trump saying as recently as August that Powell had been “a little bit too early and little bit too late” on policy decisions.
Having a ‘Say’
Trump has also said he believes presidents should have “say” on the Fed’s interest-rate policy, and suggested policymakers acted for political reasons when they lowered rates by a larger-than-usual half percentage point in September.
In an October interview with Bloomberg News Editor-in-Chief John Micklethwait, Trump subsequently said he doesn’t think he should be able to order the Fed what to do, but has the right to comment on the direction of interest rates.
The totality of his rhetoric has nonetheless stoked speculation he could seek to curb the Fed’s autonomy and upend a decades-long practice of allowing the central bank to conduct monetary policy independently of the executive branch. During Trump’s first term, he explored firing Powell, a move that would have been unprecedented and legally questionable, according to legal scholars.
The Fed has guardrails surrounding it that could protect it against presidential interference. A president’s appointees to the Fed’s Board …read more
Source:: The Denver Post – Politics
