The Federal Reserve is expected to cut interest rates by 25 basis points Thursday and avoid any unnecessary surprises less than two days after the election of Donald Trump as the next president.
“They’d rather just cut, keep their heads down and not say anything all that new,” said Luke Tilley, chief economist for Wilmington Trust.
Still, that doesn’t mean the discussion today in Washington will necessarily be a smooth one.
Fed policymakers will have to make sense of recent data indicating a strong economy, persistent inflation, and a muddled jobs market disrupted by weather and worker strikes.
And there could be a debate between those who want to cut, those who could support a pause, and those who would support a cut combined with language designed to communicate a more gradual approach to future reductions.
Fed watchers expect central bank chairman Jerome Powell to forge a consensus around a small cut, following a jumbo-sized reduction of 50 basis points in September.
Powell will then face questions at a press conference about the election outcome and what it could mean for his tenure as chair and the future of central bank policymaking.
Reporters are sure to pepper him with questions on how Trump’s promises of broad tariffs and immigration deportations could impact the economy, the deficit, and inflation — and thus the path for monetary policy going forward.
There are concerns that Trump’s policies could push up prices and wages, making the Fed’s job of getting inflation down to its 2% target more challenging.
The Fed chair will likely deflect on the impact of any new administration policies and argue the Fed decided to cut rates again to sustain the strong performance of the US economy as inflation continues to moderate.
Powell will also likely emphasize, as he has all year long, that politics do not factor into the decision making of Fed policymakers.
It is not yet known what the election means for Powell himself. With his term atop the central bank ending in May 2026, the next president will also be able to choose the next face of US monetary policy.
Trump has been clear, in spite of initially elevating Powell to his current perch, that no third term will be in the offing if he wins. And Trump loyalists have already been jockeying for months as a result.
Most of the names include figures who have surrounded Trump for years on economic policy — from former Fed governor Kevin Warsh, who was on the shortlist last time, to Kevin Hassett, who worked in the White House as a senior adviser to Trump.
There are also questions about whether Trump would threaten the Fed’s independence. During his first term, then-President Trump attacked Powell with regularity and openly pushed for the actions he wanted, even once suggesting negative interest rates.
And he has signaled he could go further if he has a second term in office. He has talked about what he sees as his authority to fire Powell but then downplayed the notion. He said he wanted a “say” in setting interest rates but then immediately walked that comment back.
He has also offered varying levels of antagonism toward September’s jumbo rate cut, most recently saying in early October it was “too big a cut, and everyone knows that was a political maneuver.”
