When Fed policymakers conclude their first policy meeting of the second Trump administration on Tuesday, they are likely to leave interest rates unchanged. President Donald Trump, who has pushed the central bank to decrease interest rates, would probably be irritated by that.
Trump made broad statements during a videoconference last week at the World Economic Forum in Davos, Switzerland, saying, “I’ll demand that interest rates drop immediately.” Similarly, they ought to be dropping everywhere. Interest rates ought to track us everywhere.
The comments continued Trump’s practice of making his monetary policy opinions public, which American presidents have typically shied away from in order to preserve the Fed’s independence from politics.
In follow-up remarks following his Davos speech, he stated, “I know interest rates much better than they do.” Additionally, he expressed his continued disapproval of Fed Chairman Jerome Powell, whom he selected in 2017 and has pledged to keep in place until Powell’s tenure expires in May 2026.
Powell is scheduled to speak at 2:30 on Wednesday after the Fed makes its interest rate announcement at 2:00 PM ET.
With the nation currently engulfed in the Covid-19 outbreak and acrimonious disagreements over lockdown protocols to battle it, the U.S. economy is in a very different state than it was when Trump left office in January 2021.
Although it has been above the Fed’s 2% target rate for months, inflation has mostly subsided to 2.9% as of December following a pandemic-era price spike that severely damaged the finances of many people. After companies added more than a quarter-million jobs, unemployment decreased slightly to 4.1% in December from 4.2% the previous month, allaying concerns about a labor market that has held up well despite cooling.
Meanwhile, despite households’ growing emphasis on value, consumer expenditure has remained stable. For the second straight quarter, the gross domestic product, which is heavily influenced by the consumption of goods and services, grew by at least 3% in December.
All of those indicators, according to analysts, indicate that the economy is still doing well in spite of the challenging last mile of the inflation struggle and that it is not yet in need of a new boost from the Fed. Wall Street does not anticipate the first of two rate cuts it has scheduled for this year to occur on Wednesday.
Elizabeth Renter, senior economist at NerdWallet, stated in a statement that there is minimal uncertainty that the Fed will maintain rates at their current level this week. Even while this high rate environment has put burden on many people and businesses, the economy is nonetheless doing well. This economic success is attributed to the continued strength of consumer expenditure.
Fed officials have lowered their benchmark rate for three straight sessions, bringing it down from a 20-year high range of 5.25%–5.5% to the current level of 4.25%–4.5%. However, experts say it has become increasingly difficult to maintain borrowing costs high enough to restrain price increases without sending the economy into a recession.That is mostly because of Trump’s economic agenda, especially his tariffs, of which his first policy action is anticipated on Saturday.
According to Renter, Fed policymakers are currently in a particularly difficult position. Now that the new administration is in office and starting to function, discussions about policies that involve a higher risk of inflation are given more weight.
Joe Brusuelas, chief economist at the financial firm RSM, stated that this makes the route for rate reduction this year unclear.
Brusuelass stated in a note Tuesday that although the Fed would not admit it, it is certain that the Trump administration’s immigration and trade policies will influence the central bank’s decisions this year. The Fed’s long-held 2% inflation objective would be at jeopardy if these actions resulted in greater inflation or, more importantly, increased inflation expectations.