The Federal Reserve’s decision to cut interest rates in the wake of Donald Trump’s victory marks a crucial moment for the American economy. By lowering the cost of money by a quarter of a point, the central bank has started its second consecutive reduction, in a move expected by the markets. Despite concerns, Wall Street has reacted positively, continuing a bullish trend started by the entrepreneur’s victory.
Fed Chairman Jerome Powell has defended the institution’s autonomy, firmly stating that he will not leave his post even if the new president asks for it. He stressed, in fact, that the removal of the Fed chairman is not legal.
The Fed’s decision was driven by progress toward its 2% inflation target, signaling a solid economic recovery. However, Powell warned that the economic outlook remains uncertain. The central bank will face multiple challenges, not least those related to the policies of the new president. During his first term, Trump has harshly criticized Powell, suggesting that his management could be even more damaging than that of Chinese leader Xi Jinping. According to informed sources, Trump may allow Powell to serve out his term until the end of 2026 before moving forward with a replacement. Among the potential successors, well-known names such as Kevin Warsh and Kevin Hassett are already emerging. Even if Powell were to remain in office, there are many unknowns about the Fed.
Trump’s policy choices could profoundly affect the Fed and the American economy. If the president follows through on his campaign promises, he is expected to increase trade tariffs, which could fuel inflationary pressures. A recent study estimated that Trump’s economic plan could increase the national debt by as much as $7.5 trillion by 2025. Despite these concerns, Powell reiterated that in the short term the election will not affect the Fed’s monetary policy.
“We do not predict or speculate on fiscal policy,” Powell said, noting that analysts are already anticipating a further rate cut at the next meeting. As interest rates approach neutral, the Fed is likely to adopt a more cautious approach in its future actions. This policy recalibration is essential to keep the economy and labor market strong while allowing inflation to advance toward its goals. In conclusion, the Federal Reserve is facing a crucial moment: balancing its monetary policies in a volatile political and economic environment will be fundamental for the future of the American economy.
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