During his campaign, President Donald Trump focused quite a bit on fixing inflation for Americans, allowing them to buy basic necessities. Now that he is in office, Trump plans to decrease interest rates to decrease inflation further. In 2024, the Fed reduced interest rates multiple times and is not in favor of slashing them again. Trump claims that he wants interest rates to come down “a lot” and expects to speak with the Fed chairman Jerome Powell “at the right time.”
While there were major changes in 2024, the Fed is cautiously considering additional adjustments to rates in 2025. Donald Trump has made it well known that he plans to implement tariffs, which worries the Fed. In a December meeting, nearly all Federal Reserve officials agreed that “upside risks to the inflation outlook had increased” due to the probable effects of expected new trade policies implemented by Trump. Many Fed officials are clear that they are quite concerned with inflation, and ensuring it is in a healthy spot.
What will Donald Trump and the Fed do about Inflation and Interest Rates?
The Fed Chair hopes to keep the inflation rate to about 2%, slightly lower than what it currently is, 2.9%. After their meeting on January 29th, the Fed plans to keep interest rates in its current range, 4.25% to 4.5%. Based upon that meeting, experts do not expect the Fed to cut rates in their next meeting on March 19th. Rate changes are possible in the following Fed meeting on May 9th.
It seems like the Fed is implementing a “wait and see” strategy to Trump’s potential policies. Many Fed members are concerned with Trump’s plans to implement tariffs and widely deport illegal immigrants, as both would likely increase inflation. Erasmus Kersting, professor of economics at Villanova University, said, “The reason why the Fed isn’t jumping the gun at lowering the rates faster and further is that, on the one hand, inflation is not gone. They looked carefully at the data, and it is still stubbornly above target, so there is concern that if you lower rates further, inflation will tick up again.”
Some experts are bringing up the possibility of even raising interest rates, a move that would surely upset the new President. Ken Rogoff, an economist at Harvard University, said “I think the odds of a hike are the same as the odds of a cut,” indicating higher potential deficits and investments with the future economy being driven by AI.
What do you think about the Fed holding firm on interest rates? Is it the right decision, or will it lead to worse economic conditions? Will Donald Trump “fix” inflation? Let us know in the comments.
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