Fed Policy Decision: Powell Faces Uncertainty Amidst Trump's Tariff Threats
Investors anticipate no surprises at the Federal Reserve's upcoming FOMC meeting, where interest rates are expected to remain unchanged. However, uncertainty looms as Fed Chair Jerome Powell navigates the potential impact of President Donald Trump's threatened tariffs on Mexico, Canada, and China.
Economists predict that tariffs could increase inflation, while Trump has expressed his desire for further rate cuts. JPMorgan chief economist Michael Feroli anticipates Powell will take a cautious approach, acknowledging the influence of trade policies while emphasizing the Fed's independence in its monetary policy decisions.
In December, Fed officials acknowledged rising inflation risks due to potential trade and immigration policy changes. Some officials have expressed concerns about persistent inflation, reducing their projected rate cuts for 2025 from four to two.
Recent inflation data shows a slight decline in core CPI to 3.2% on an annual basis, although economists forecast an increase in core PCE for December.
Amidst these economic uncertainties, some analysts raise the possibility of the Fed even raising rates this year. Harvard economist Ken Rogoff suggests that the potential for higher deficits and AI investments could balance out the need for rate cuts.
The Fed's policy decision will be announced at 2 p.m. ET, followed by Powell's press conference at 2:30 p.m. ET.