Reuters surveyed a small majority of economists who believe that the US Federal Reserve will likely hold its key interest rate steady during its meeting on January 28-29 and resume reductions in March.
The economic outlook will be shaped by the policies of Donald Trump’s administration in the months to come.
The poll, conducted before Trump’s inauguration suggests that any substantial reductions in rates may be limited because of lingering inflation pressures as well as uncertainty surrounding the incoming president’s economic policies.
Fed faces challenges amid rising prices and new policies
The Federal Reserve is expected maintain its current policy stance, but the prospect of an economic stimulus from Trump’s government has fueled concerns about rising inflation.
“If they deliver on what they promised, then we will probably see a stalling in disinflationary forces, where the Fed won’t be cutting,” said Jonathan Millar senior US economist at Barclays.
“At the very least, they will not be as fast as they were in the fall of last year, but there is also the possibility that they may be put on hold for a long time.”
Millar suggests the Fed may be unable to cut rates as rapidly as it has in the past. It’s possible it could hold rates for an extended period of time if inflation rises as expected.
This shift in Fed policy would depend largely on how aggressively Trump pursues the economic pledges he has made.
Mixed outlook for US economy and Fed rate path
Since the Fed’s December rate cut, the US economy is showing signs of strength. Inflation has cooled and the job market has seen impressive gains in December.
Some economists have suggested that additional economic stimulus may be unnecessary, given that the economy is performing well.
According to the poll, there were 103 economists who all predicted that the Federal Open Market Committee will keep the interest rates at 4.25-4.50% for the meeting in January.
About 60% of respondents expect the Fed will begin reducing rates in March.
However, economists are now more cautious in their predictions for the future of interest rates, and fewer expect significant reductions this year than they did previously.
Trump’s policies on inflation
One of the main concerns for economists is the impact of Trump’s policies, especially the introduction of tariffs and immigration restrictions, as well as new fiscal measures.
The survey indicates that the inflation rate is likely to remain higher than the Fed’s target of 2% at least until 2027 as the US economy adjusts itself to the changes brought about by the new administration.
“We expect FOMC to be faced with a pickup of inflation associated with the new Administration’s tariff, migration and fiscal policies,” James Egelhof said, chief US economist at BNPParibas.
“Coming directly after the high inflation that followed the post-pandemic economic recovery, we see an elevated risk that inflation above 2% will become entrenched in the country, leaving the FOMC to pursue a more conservative path to manage this threat.”
Slower growth in US economy?
The US economy is expected to continue growing in 2025, despite the inflationary pressures that are anticipated.
The survey predicts that the Fed will maintain its current non-inflationary rate of growth at 1.8% in 2025, but it will increase to 2.2% by 2026.
This stronger-than-expected growth is likely to add to inflationary pressures, further complicating the Fed’s policy decisions.
Despite these concerns most economists agree a rate increase this year is unlikely.
A strong economy and continued pressures on inflation could lead to rate hikes, but this issue is expected to be more prominent in 2026 as policymakers adopt an “await-and-see” approach in 2025.
This post Fed may pause rates cuts in January amid inflation worries tied to Trump’s policy: Reuters poll can be modified as new developments unfold
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