How can we consider all eventualities without appearing to comment on political decisions? This is the subtle exercise undertaken by the head of the American Federal Reserve (Fed) Jerome Powell, emphasizing that his institution was preparing for the economic impact of Donald Trump's return to the White House.
The central point of course concerns tariffs, one of the main economic policy proposals of the president-elect, who has considered imposing 10 to 20% customs duties on all products entering the United States, and even up to 60 or even 100% on those coming from China.
Such a decision would revive inflation, many experts assure, which Donald Trump refutes, who repeated that, “used properly”, customs duties can, according to him, have a positive impact on the American economy.
But, whatever the effect, the possibility of this return of customs duties – which seems to materialize with the first announcements of a 25% tax on products coming from Canada and Mexico – brings “l “uncertainty around inflation,” said Mr. Powell on Wednesday during his traditional press conference.
The president of the Fed refused to comment the day after the election, while the Fed lowered its rates for the second time.
But this time, after a third drop, he leaked elements highlighting a certain concern.
“We have no idea what will be taxed, from which country and for how long. We don't know if there will be retaliatory measures. And we do not know how the transmission to consumer prices will take place,” detailed Mr. Powell.
In the immediate future “we do not know what the government is planning, we will learn what policies Congress or the government is considering and will pursue, we will have to analyze and integrate them” into the Fed's models, said one of the members of the Fed. FOMC, John Williams, interviewed Wednesday on CNBC.
This did not prevent the Fed from considering inflation at 2.5% in 2025, while it was hoping for 2.1% three months earlier, and a return to 2%, its long-term target, at the start 2027 at best.
And to only consider two rate cuts next year, of 25 basis points each.
Divergent objectives
“We have a bit of the feeling” that the FOMC, the Fed’s monetary policy committee, “wanted to send a message both to the markets and to the next administration,” analyzes Steve Englander, analyst at Standard Chartered Bank.
Because if we look at the position of the committee members, “this is a remarkable shift. We went from three people considering rising inflationary risks at the previous meeting to fifteen at this last one,” underlines Aditya Bhave, economist for Bank of America.
“There is little reason to be pessimistic” regarding the economic situation “and yet they have chosen to be, it is difficult not to see it as a signal,” underlines Mr. Englander.
During his press conference, Mr. Powell recalled that among the members of the committee, “some identified political uncertainty among the reasons prompting them to envisage more uncertainty on the path of inflation”.
“I particularly took into account the direction that fiscal policy, that on immigration and others, can take, because they will be an important factor for our economic outlook,” detailed John Williams on CNBC.
Relations between Jerome Powell and Donald Trump, who appointed him to this position, were already highly strained, with Mr. Trump accusing the Fed of acting for the benefit of the Democrats during the presidential campaign.
Even more, Donald Trump would like to call into question the independence of the central bank, regularly stating his desire to be able to have a say on monetary policy.
The Republican billionaire claims to have “a better instinct” on economic issues than those in charge of the institution, which, according to him, justifies him having “at least” a right to review decisions.
It is difficult in these conditions not to see in Jerome Powell's comments on Wednesday a desire to reaffirm the independence of the Federal Reserve, he who has reaffirmed in recent weeks that he had no intention of leaving his post before the end of his term in 2026.
“We did not explicitly state that there was any form of disagreement between the White House and the Fed,” continues Aditya Bhave of Bank of America. “But we could quickly find ourselves in a situation where the two are not aligned in their goals.”
