Fed Set to Defy Trump’s Call for Lower Interest Rates
As the Federal Reserve gathers for its first meeting of the year, all eyes are on whether it will cave to President Donald Trump’s demands for lower interest rates. However, experts believe the Fed will resist pressure and keep rates steady, citing uncertainty around the White House’s policy moves.
A Wait-and-See Approach
U.S. Bank chief economist Beth Ann Bovino predicts the Fed will take a back seat, given the unclear policy landscape. “Nobody knows what to expect from the White House,” she said. “The policy moves are still very unclear, but we do know that a number of those proposals that have been talked about in the White House are a bit inflationary, and I think that’s going to keep the Fed in check.”
Market Expectations
Market pricing suggests a near 100% certainty that the Fed will maintain its current policy rate, with traders expecting no changes until June. This gives the Fed time to assess the impact of Trump’s plans for tariffs, regulations, and immigration.
Central Bankers Weigh In
Former Dallas Fed President Robert Kaplan advises the Fed to hold firm and avoid making any policy changes. “It’s the right call to stay steady,” he said. “Inflation progress is maybe not stalled but it’s going sideways, and you’ve got four or five big structural changes underway and about to unfold.”
Inflationary Pressures
Kaplan cites potential inflationary pressures from tariffs and mass deportations, which could drive up labor costs. On the other hand, government spending cuts and regulatory reviews could have a disinflationary effect.
Fed’s Legislative Mandate
Former Kansas City Fed President Esther George emphasizes the Fed’s duty to follow its legislative mandate, which is to maintain low and stable prices. “Congress has told us it is to bring prices to a low and stable level,” she said. “In the long run, this institution has to think about those objectives rather than be swayed by outside commentary and political pressure.”
What to Expect
The Fed’s rate decision will be released on Wednesday, followed by Chair Jerome Powell’s news conference. Investors will be watching closely for any hints about future policy moves.
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