The American central bank reduced its rates on Wednesday for the third time since September, but it intends to slow down its easing policy in 2025, due to lack of visibility on the policy announced on Donald Trump and its possible inflationary impact.
Donald Trump is not going to like it. The Fed decided on Friday, as analysts predicted, to lower its key rates by a quarter of a point, bringing them to a range between 4.25% and 4.50%, enough to give a boost to investment and consumption. Except that inflation has returned across the Atlantic, to 2.7% in November at an annual rate, far from the institution’s 2% objective. And that the arrival of Donald Trump at the White House on January 20 throws all economic forecasts into fog.
Trump unhappy
This uncertainty explains why the rate cut announced on Wednesday was not unanimous – one of its members of the Monetary Policy Council spoke out against it – and why the Fed intends to slow down its rate cuts next year, with only two drops of a quarter point each planned. Without giving in to pressure from the president-elect, who is calling for a clear loosening of monetary policy after his election.
This is the third rate cut by the American central bank, which in September had already reduced them by half a point in one go, given the slowdown in the job market. In November, after the election of Donald Trump, it further reduced them by a quarter of a point. But the central bank does not expect inflation to return to 2% before the end of 2026 and has even raised its inflation forecast for 2025, which it expects to be around 2.5%, compared to 2.1% during its previous forecast, in September.
This persistent inflation should not, however, weigh on economic activity, since the Fed expects growth of 2.1% for 2025 (compared to 2% forecast three months earlier), with an almost stable unemployment rate, at 4.3%.
What are the consequences of Trump’s protectionist measures?
But by announcing more measured rate cuts, the Fed shows that it considers the protectionist policy promised by Donald Trump to be potentially inflationary. The president-elect announces a massive increase in customs duties, which will increase the price of imported goods. But without knowing the duration and extent of these measures, or whether there will be commercial retaliation, it is impossible for the moment to predict the effects, underlined Jerome Powell.
The movement is global. In the midst of an economic slowdown, Europe is also lowering its rates: last week, the European Central Bank reduced its main key rate to 3%, a decision which shows the concern of economic circles in the face of the slowdown in activity in Europe, in competition with the United States and China.
News
France
