Fed Meeting Preview: Powell Faces Pressure Amidst Trade Policy Uncertainty
Investors anticipate little surprises from the Federal Reserve's policy meeting, as interest rates are expected to remain unchanged after consecutive cuts in 2024. However, Fed Chair Jerome Powell's upcoming press conference raises concerns about the impact of Donald Trump's trade policies on monetary policy.
Trump's threatened tariffs evoke predictions of inflationary pressure, complicating the Fed's efforts to control inflation. Additionally, he has publicly expressed a desire for further rate cuts, potentially setting the stage for a conflict with the Fed.
Economists speculate that Powell will adopt a cautious approach at the press conference, acknowledging varying assumptions within the Fed regarding trade policies. He is likely to emphasize the independence of the monetary policy statement released by the rate-setting committee.
Recent policy statements have indicated the Fed's willingness to adjust rates based on economic data and changing conditions, signaling a less aggressive stance in its 2024 rate-cutting cycle. Evidence suggests growing concerns among Fed officials about inflation, leading to a reduction in projected rate cuts for 2025.
Inflation data has shown gradual improvements, but persistent concerns remain. Core CPI, excluding food and gas, rose slightly in December, while annual inflation rates have eased.
The Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) index, is expected to remain unchanged in December. Economists predict a modest increase in core PCE compared to November.
Some economists raise the possibility of the Fed raising rates this year, a move that could provoke Trump's criticism. Expert opinions vary, with Harvard's Ken Rogoff expressing skepticism about further cuts due to potential economic drivers such as increased deficits and AI investments.
The Fed's policy decision will be announced at 2:00 p.m. ET, followed by Powell's press conference at 2:30 p.m. ET.