Bankrate’s Post

NEWS: The Federal Reserve cut interest rates for the second consecutive meeting on Thursday, this time by a smaller quarter of a percentage point. This decision was an easy one. The next ones, however, might not be. Fed officials are facing an uncertain backdrop, now that the next president — President Donald Trump — has been named. Speculations are already swirling that the Fed might cut interest rates by less than originally projected. Trump’s policies promoted on the campaign trail — including higher tariffs and tax cuts for corporations — could fuel inflation, economists say. The “Trump trade” has already juiced up financial markets, with the S&P 500 surging to a new high on the news of his election. Trump’s election is also thrusting Powell back into a familiar — but awkward — spotlight. Trump routinely commented on monetary policy, insisting that the Fed cut interest rates when it was still on the sidelines and grow its balance sheet when policymakers were in the process of shrinking it. On Twitter, Trump called Chair Powell, whom he appointed, an “enemy,” deemed the Fed “the biggest threat” to the U.S. economy and called officials “boneheads.” On the campaign trail, Trump has gone as far as suggesting that the president should “at least have [a] say” in interest rate decisions, though he later clarified that he would not “order” a move. Over the years, I’ve talked to several former Fed officials about what it’s like to be in the room during the meeting. Politics never comes up in the discussion, they’ve all said. But Fed independence comes from Congress, they say, who would have the authority to undo it. For those wondering, the Fed followed through with its rate cut this month for one simple reason: Policy proposals are different than law. I dug back through the transcripts of the Fed’s December 2016 meeting to see how Fed officials discussed Trump’s presidency, immediately after his first election. Check out this key quote from former Fed Chair Janet Yellen: “I will also note that many proposals for taxes and spending are currently being discussed, but there is considerable uncertainty about what the Congress may eventually pass, and that we do not intend to act preemptively based on guesses about future policy even though some of us have incorporated such guesses into our Summary of Economic Projections (SEP) submissions.” All that’s to say, it’s unclear whether Trump would follow through with those promises. And the Fed will likely want to see evidence of how it impacts their two economic goals: stable prices and maximum employment. What do you think the Fed’s next moves could be? Read more: https://lnkd.in/ebxQEyWk