It meets again in December then in late January, and markets see a good chance of a pause in the easing cycle at one of those meetings.
Powell will be subjected to the same line of political questioning, and he’s unlikely to get off so easily.
The two clashed regularly during Trump’s first term, even though Trump appointed Powell to the position back in 2017.
That saw Powell replace Janet Yellen at the helm of the world’s biggest central bank, before President Joe Biden reappointed him for another four years.
Powell’s current term expires in 2026, and despite Trump threatening to fire him on several occasions, that’s unlikely to happen.
This means the tension is likely to resume, when the central bank is trying to navigate an already difficult path.
The US inflation rate has been in the 2-3% range for four months.
That’s great progress, after it hit 9.1% (the highest since Ronald Reagan was in office in the 1980s) in 2022.
However, the Trump agenda of reducing taxes and implementing tariffs is inflationary.
We don’t know how much of Donald Trump’s stated agenda will ultimately be implemented, writes Mark Lister.
That’s one reason longer-term interest rates and inflation expectations have increased recently, while forecasts for Fed cuts have been pared back.
Markets are betting the Fed will have to go slower from here, compared to what traders were betting on a few weeks ago.
The US 10-year Treasury yield rose above 4.4% last week.
That’s the highest in four months and more than 70 basis points above where it was the day after the Fed’s 50-basis point cut in September.
The 10-year is an important benchmark for financial markets, and it influences mortgage rates so it matters to prospective homeowners too.
The Committee for a Responsible Federal Budget (CRFB) has a base case estimate for an increase of US$7.75 trillion in the deficit over the next decade under the Trump plan.
That would see debt to GDP rise above 140% by 2035, compared with about 90% today.
Having said that, we don’t know how much of Trump’s stated agenda will ultimately be implemented.
He also promised to lower inflation on the campaign trail, and that goal is inconsistent with some of his other policies.
Then again, inflation averaged about 2% during Trump’s first term and never hit 3%, despite a raft of tariffs being introduced.
The Democrats can’t throw stones either, as President Joe Biden left most of these in place and even added a few more.
We’ll have to wait for the inauguration of Donald Trump as the 47th President in January, and then see how he approaches the first few months of 2025.
Until then, a lot of this is up in the air.
What we do know is that the Fed’s tightrope might be getting even tighter, and its communication challenges more difficult.
We’re in for an interesting 12 months, and it might all start with the upcoming meeting in December.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
