By Ann Saphir
(Reuters) -The election of Donald Trump as U.S. president may mean the Federal Reserve will not cut rates as far or as quickly as previously expected, with the expectation that a slew of new policy measures will follow once he takes office the downward trend in inflation will slow down.
US central bankers are still widely expected to cut key rates by a quarter of a percentage point to a range of 4.50%-4.75% when they conclude their policy-setting meeting on Thursday.
But futures traders who settle for the Fed’s policy rate are now less certain of a December rate cut than before, because the contracts are now priced for the Fed to cut rates in June, once the policy rate is in the 3.75 %-4 lies. % reach.
If these expectations come true, the end of the Fed’s current rate-cutting campaign would come more than a year earlier and a full percentage point higher than most Fed policymakers had predicted after their initial rate cut in September.
Since then, stronger-than-expected economic data had reset market interest rate expectations for an increasingly shallow rate-cutting path. That shift gained momentum as Trump won victory at the ballot box.
Trump campaigned on promises to fix what he sees as an ailing economy, and plans to impose higher tariffs, cut taxes and slow immigration to do that.
Economists say these policies are likely to lead to faster economic growth and a tighter labor market which, together with higher import costs, would put upward pressure on prices.
Some analysts warned that the impact of Trump’s policies could play out over the years, and he may not fully deliver on all of his promises — meaning traders may be on the receiving end of interest rate cuts. Fed to be written off after June.
“The delay in the inflationary impact of rates and expansionary fiscal policy allows the Fed to continue cutting rates into 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive,” Oxford Economics analysts wrote, Persistent to their positions. The Fed is expected to cut rates by almost 3% by mid-2026.
That view could change, they said, as Trump’s intentions become clearer in the coming months.
(Reporting by Ann Saphir; Editing by Andrea Ricci)
