Trump's return may reduce the number of interest rate cuts by the Federal Reserve?

Economists said on Wednesday that Trump's election means the Federal Reserve may cut rates fewer times than expected in the next 13 months.

Mark Spindel, Chief Investment Officer of Potomac River Capital, said, "Trump is a president who likes to spend money; he is a real estate developer who loves to borrow. I don't think he has abandoned either of those ideas." The combination of high debt levels and additional fiscal spending means "the Fed may lower expectations for future rate cuts," he added.

In the latest forecasts, Fed officials expect to lower the benchmark rate from the current 4.75%-5% to 3.25%-3.5% by the end of 2025. Traders in the derivatives market expect rates to fall to 3.75%-4% by the end of next year.

Michael Strain, resident scholar and director of economic policy research at the American Enterprise Institute (AEI), said, "The Fed believes it will lower the funds rate to the 3% range. The market also believes the Fed will lower the funds rate to the 3% range. To me, that seems unlikely."

Strain said, "I think we should still be focused on inflation, I believe President Trump’s agenda in 2025 could trigger inflation."

Economists believe tariffs could trigger inflation and negatively impact economic growth.

Strain said, "If the Fed does its job, that will put upward pressure on rates."

This would put the Fed at odds with Trump's White House.

Strain said, "I don't think President Trump would want upward pressure on rates."

Currently, Strain said he is not worried about inflation rising sharply but believes the inflation rate will "stabilize" around an annual rate of 2.5%, above the Fed's 2% target.

David Seif, Chief Economist for Developed Markets at Nomura, said, he now expects only one 25 basis point cut in 2025.

He said, "We expect additional easing in 2026, but we have raised our terminal rate forecast from 3.125% to 3.625%."

Seif said the fiscal outlook could worsen if the Republicans continue to control the House and Senate.

Strain said it may not be the Fed, but rather "the bond market itself" that will constrain the new Trump administration.

"The guardians of the bond market may have the last laugh," he said.

Since the Fed aggressively cut rates by 50 basis points in September, the yield on the 10-year U.S. Treasury has risen by 70 basis points.

Strain said the Fed will not reconsider its rate path at its ongoing meeting. This change may be reflected in the next official forecast released at the mid-December meeting.

Regarding this week's meeting, economists still maintain their expectation of a 25 basis point rate cut. Powell is expected to avoid questions about the impact of the new White House economic policies on interest rate prospects during the press conference.

David Wilcox, a senior fellow at the Peterson Institute for International Economics and head of U.S. economic research at Bloomberg Economics, said, "The last thing Powell wants to do is engage in a dialogue with the president-elect in the media."