Federal Reserve (Fed): Cautiously lowering interest rates in the face of new economic and political challenges

The Federal Reserve, led by Jerome Powell, took a cautious and prudent approach after the recent interest rate cut, adjusting its policy to a new range of 4.50%-4.75%. The move comes in an unusual political context, as Donald Trump’s recent election victory brings uncertainty to the economic outlook. The new administration’s proposals, which include mass deportations, sweeping tariffs and tax cuts, are raising concerns about the potential impact on U.S. economic policy. However, Powell stressed that these initiatives will not affect the Fed’s decisions today.

Powell stressed that the Fed will continually review economic data to adjust its monetary policy in line with developments in inflation, which is currently close to its 2% target. This moderation in inflation has allowed the Fed to lower its benchmark interest rate, aiming for a more neutral stance that does not significantly stimulate or contract the economy. Still, the challenge on the horizon for the Fed is determining the net effect of Trump’s new policies on price stability and full employment, the central bank’s two main goals.

The previous Joe Biden administration set precedents with major infrastructure projects and other spending packages that boosted economic growth, although they also contributed to inflation, which the Fed later had to control with rapid rate hikes in 2022 and 2023. Today inflation is falling. , and the Fed began a cycle of gradually lowering interest rates in an effort to soften the economy in an orderly manner. However, Powell acknowledged that the extent of this adjustment remains uncertain and will depend on how fiscal and tax policy evolves under the leadership of Trump and the Republican majority in the Senate and perhaps even the House of Representatives.

Powell, who was appointed by Trump but has clashed with him in the past, will continue to lead monetary policy through the first months of the new administration, a critical transition period. Despite previous tensions, Trump has signaled he will allow Powell to complete his term, which runs until 2026. Powell made clear he would not resign if asked and stressed that the law does not allow a president to remove a chief executive. Fed due to political differences.

Against this backdrop, the outlook appears stable, at least in the short term. The Fed forecasts that inflation and interest rates will continue to decline modestly, and that the labor market appears strong and healthy, although there is some weakness. Investors are anticipating the possibility of additional rate cuts in December as the Fed continues to closely monitor economic developments and the possible impact of Trump’s policies. Powell stressed that the country and its policies are in a “very good position,” which provides confidence in an economic environment that is moving toward stability and sustainable growth.