US Fed expected to look beyond Trump win and cut rates again

The US Federal Reserve could cut interest rates by as much as 50 basis points – Copyright AFP MANDEL NGAN

The US Federal Reserve is expected to announce a quarter-point interest rate cut this week, shrugging off the economic uncertainty raised by Donald Trump’s US election victory to continue easing borrowing costs on the back of cooling inflation.

The Fed’s two-day rate meeting began at 10:00am in Washington (1500 GMT) on Wednesday, having been pushed back by a day because of US elections, the US central bank announced. 

Fed policymakers are expected to tune out the political noise and focus instead on the health of the US economy.

Their favored inflation gauge eased to 2.1 percent in the 12 months to September -– just above its long-run goal of two percent -– while economic growth has remained robust. 

The labor market has also remained resilient, despite a sharp hiring slowdown last month due to adverse weather conditions and a labor strike.

Against that backdrop, analysts and traders are confident that the Fed will announce a quarter percentage-point cut on Thursday, lowering the US central bank’s benchmark lending rate to between 4.50 and 4.75 percent. 

“Election news will not affect the Fed’s setting of monetary conditions,” economists at High Frequency Economics wrote in a note published Wednesday, adding that they still expect a cut of 25 basis points. 

That would leave the bank’s key lending rate 0.75 percentage points lower than it was before it began easing monetary policy in September.

Beyond Thursday, Trump’s victory could also usher in some changes at the Fed.

On the campaign trail, the president-elect doubled down on his past criticism of Fed Chair Jerome Powell — whom he first appointed to run the US central bank — and indicated he would like to have “at least” a say over interest rate decisions. 

Trump’s tariff proposals have also been criticized by some analysts as inflationary, since they could put upward pressure on the price of imported goods and force the Fed into keeping rates higher in order to control rising prices.