Following on three consecutive interest rates cuts, the US Federal Reserve is likely to keep steady this week, paralyzing the rate hiccups that will take more clarity in terms of economic performances by the new administration of President Donald Trump. Analysts expect the Fed to wait and assess the economic policies by Trump’s new administration before taking further steps. Moody’s Analytics chief economist Mark Zandi said, “I think the Fed sits on its hands… Until there’s more clarity – or any kind of clarity – around the economic policies of the Trump administration, the Fed is going to be reluctant to move.”
Currently, the US economy is doing well with good growth, a healthy labor market, and low inflation, though inflation remains above the Fed’s long-term target of 2%. The Fed has been changing the benchmark short-term lending rate to steer borrowing costs. However, in the last quarter of 2024, it lowered the rate by a full percentage point, placing it between 4.25% and 4.50%.
Futures traders still overwhelmingly predict the Fed will come out of its meeting this month unchanged, betting at a 70% level that it would hold rates at least through March 2025. Regarding Trump’s recent reversion to his critique and his continued efforts to implement tariffs and extend tax cuts, “I think those policies are inflationary, period,” said economist Zandi, “it’s just a matter of what degree”.
The Fed’s last meeting saw a decrease in expected rate cuts for the year, with some members forecasting only two cuts.According to Goldman Sachs economists, a mild inflationary impact can be expected; thus, two quarter-point cuts are in their forecast, whereas Barclays economists see only a single 25 basis point cut. Two rate cuts can also be anticipated by Zandi, but this analyst admits the Fed may end up raising the rates instead. Meaningful odds that the next move by the Fed may not be a rate cut, it might be a rate increase, was what Zandi concluded.