Wat-Not Staff
The Federal Reserve announced a quarter-point reduction in its key interest rate on Thursday. This widely expected decision comes as inflation nears the central bank’s 2% target. In their statement, officials noted inflation is “somewhat elevated,” though unemployment remains low.
Labour market conditions have “generally eased,” hinting at softer hiring trends.The move lowers the federal funds rate to a range of 4.5%-4.75%, signalling the Fed’s effort to balance inflation control with economic growth.
Despite inflation slowing, officials remain cautious about potential inflationary pressures from upcoming fiscal and trade policy shifts, particularly under President-elect Trump.
Fed Signals Caution Amid Inflation Risks
Fed officials removed language expressing confidence about reaching the 2% inflation target. Some analysts interpret this change as a signal that the central bank may forgo an additional rate cut next month.
Omair Sharif, president of Inflation Insights, suggested that this could lead the Fed to pause future cuts.
Inflationary risks are tied to potential changes in U.S. trade policy, especially tariffs. With Trump’s economic proposals set to take effect, analysts fear that new tariffs could trigger inflation, potentially complicating the Fed’s strategy of lowering rates.
Trump’s Economic Plan May Alter Fed’s Course
The Federal Reserve’s decision to lower interest rates aligns with efforts to mitigate the economic challenges posed by the pandemic’s price surges. However, President-elect Trump’s promise to overhaul the fiscal landscape, particularly through a new tariff regime, could disrupt the Fed’s current trajectory.
Trump’s proposed tariffs, which are expected to be far broader than those imposed during his first term, could reignite inflation.
The uncertainty surrounding these policies has already prompted market shifts, with bond sell-offs signalling concern about a return to inflationary pressures.
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