What a second Trump term would mean for the central bank
What a second Trump term would mean for the central bank
The Federal Reserve cut interest rates by a quarter percentage point on Thursday, just two days after Donald Trump won a second term as president. Fed Chair Jerome Powell stayed away from politics (as much as he could) at Thursday’s press conference, but some of President-elect Trump’s proposals have implications for the economy.
The Fed Chair said he feels good about the current state of the economy.
“The labor market has cooled from its formerly overheated state and remains solid,” Powell said. “Inflation has eased substantially from a peak of 7% to 2.1% as of September.”
This latest interest rate cut is meant to keep things on track. But some economists say President-Elect Trump’s plans for tariffs, tax cuts and an immigration crackdown could reignite inflation or even cause stagflation — where economic growth stalls but inflation and unemployment rises.
I asked Powell what he would do if stagflation became a problem. “The whole plan is not to have stagflation so we don’t have to deal with it. That is actually our plan,” he said, chuckling.
The Fed’s main inflation fighting tool is interest rates. When prices spike, the central bank tries to cool the economy by raising rates, making it’s more expensive to borrow and spend. And on Thursday, Powell wouldn’t rule out a rate hike next year, though he added that’s certainly not the plan at this point.
“We’re not in a world where we can afford to rule things out a rule year in advance. There’s just too much uncertainty in what we do,” he said.
With all that uncertainty, Powell noted that what the Fed does depends on the data — on things like unemployment and inflation. Decisions on interest rates will be made meeting by meeting, he added, and the Fed isn’t on a preset course.
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