Donald Trump’s presidency looms over the Federal Reserve

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Donald Trump’s economic plans are hanging over the US Federal Reserve and chair Jay Powell.

The central bank lowered interest rates yesterday by a quarter-point, but officials also projected fewer cuts next year as they start to factor in Trump’s proposed economic policies [free to read].

Powell jolted financial markets yesterday as he struck a very guarded tone about how much the bank will be able to lower interest rates against a backdrop of rising inflation risks.

A few months ago, Fed officials had pencilled in one percentage point worth of rate cuts throughout 2025. Now, they’re forecasting just two quarter-point decreases for the year, underscoring policymakers’ concerns about lingering inflation.

They also raised their inflation expectations for next year amid fears that Trump’s policies could bring higher prices, lower growth and greater volatility.

“This was an unabashedly hawkish message from the Fed,” Aditya Bhave, senior US economist at Bank of America, told the FT’s Colby Smith, adding that officials’ forecast for two quarter-point rate cuts in 2025 represented a “wholesale shift”.

During his press conference yesterday, Powell said some members of the rate-setting Federal Open Market Committee had begun to consider the potential effects of Trump’s proposals.

“Some did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation,” Powell told reporters.

“We just don’t know really very much at all about the actual policy,” he said. “We don’t know what will be tariffed, from what countries, for how long, in what size. We don’t know whether there’ll be retaliatory tariffs. We don’t know what the transmission of any of that will be into consumer prices.”

Dean Maki, chief economist at Point72, called the shift “striking” and said it was rooted in speculation about Trump: “It’s hard to see why they would have expected so much higher inflation if they are not incorporating things like tariffs into the forecasts.”

Transitional times: the latest headlines

What we’re hearing

The pace of Trump’s meetings with US CEOs is accelerating as business leaders contort themselves to get time with the president-elect — even if their politics don’t align.

As one Washington lobbyist told the FT’s James Politi and James Fontanella-Khan:

It takes a lot for an uber-wealthy, creative-type CEO, many of whom lean left, to suck it up and deal with Trump.

But what choice do they have?

Within Trump’s orbit, the slew of meetings is being cast as a vote of confidence in his incoming administration and economic policies. But corporate America still has serious concerns about the president-elect, especially his plans to enact sweeping tariffs, push mass deportations and roll back some manufacturing subsidies.

No matter their true thinking, executives have learned a crucial lesson: it’s better to indulge Trump’s need for exuberance and flattery than to criticise him and risk public rebukes and retaliation.

Nikki Haley, Trump’s former US ambassador to the UN who battled him in the Republican primaries, told the FT that “I’m not talking to any CEOs that are fearful of Trump”.

Now vice-chair of consultancy Edelman, where she advises companies on how to handle Trump, she said:

What I tell CEOs is that it’s good to get face time with President Trump. It’s good to let him know what you’re working on. It’s good to let him know how you’re growing business.

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