Donald Trump's election as U.S. president may mean the Federal Reserve will not cut interest rates as far or as fast as previously expected, on anticipation that a slew of new policies once he takes office will stall inflation's downward progress.
U.S. central bankers are still widely expected to cut the policy rate by a quarter percentage point, to the 4.50%-4.75% range, when they wrap up their policy-setting meeting on Thursday.
But traders of futures that settle to the Fed's policy rate are less certain now of a December rate cut than previously, with the contracts now priced for the Fed to be done cutting rates by June, once the policy rate is in the 3.75%-4% range.
If those bets bear out, the end of the Fed's current rate-cutting campaign would come more than a year sooner and a full percentage point higher than most Fed policymakers had projected after their initial rate cut in September.
Since then, stronger-than-expected economic data had been resetting market rate expectations for an increasingly shallower rate-cut path. That shift gained steam as Trump clinched the win at the ballot box.
Economists say those policies are likely to lead to faster economic growth and a tighter labor market that, along with the higher import costs, would put upward pressure on prices.
The impact of Trump's policy could play out over years, some analysts cautioned, and he may not fully follow through with all of his pledges - meaning that traders may be jumping the gun on writing off Fed rate cuts beyond June.
"The delay in the inflationary implications from tariffs and expansionary fiscal policy allows the Fed to continue to cut interest rates into 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive," Oxford Economics' analysts wrote, sticking to their view that the Fed will bring rates down close to 3% by mid-2026.
That view could change, they said, as Trump's intentions become clearer over the next few months.
