The U.S. Federal Reserve could carry out fewer rate cuts than previously expected next year should President-elect Donald Trump's global tariffs take hold, former Fed policymaker Loretta Mester said Tuesday.
The U.S. Federal Reserve could carry out fewer interest rate cuts than previously expected next year should President-elect Donald Trump's proposed global tariffs take hold, former Fed policymaker Loretta Mester said Tuesday.indicated that the Fed's outlook was set to change under the incoming Republican administration's fiscal plans, and that markets may be right in forecasting fewer than the four cuts previously forecast.
As a result, markets are now expecting 50 basis points worth of cuts in the first half of 2025, followed by a further 25 basis point reduction in the second half of the year, according to poll median forecasts cited by Reuters. That would take the Fed funds rate to 3% to 3.25% by the end of 2025, slightly below the central bank's median"dot-plot" projection.
"It's not just going to be tariffs. There's things going on on immigration, there's probably going to be things going on on the tax side, and there'll be spending also," Mester said.