WASHINGTON—Federal Reserve officials are poised Thursday to reduce their key interest rate for a second straight time, responding to a steady slowdown of the inflation pressures that exasperated many Americans and contributed to Donald Trump’s presidential election victory.
Yet the Fed’s future moves are now more uncertain in the aftermath of the election, given that Trump’s economic proposals have been widely flagged as potentially inflationary. His election has also raised the specter of meddling by the White House in the Fed’s policy decisions, with Trump having proclaimed that as president he should have a voice in the central bank’s interest rate decisions.
Financial markets are throwing yet another curve at the Fed: Investors have sharply pushed up Treasury yields since the central bank cut rates in September. The result has been higher borrowing costs throughout the economy, thereby diminishing the benefit to consumers of the Fed’s half-point cut in its benchmark rate, which it announced after its September meeting.
Trump’s plan to impose at least a 10 percent tariff on all imports, as well as significantly higher taxes on Chinese goods, and to carry out a mass deportation of undocumented immigrants would almost certainly boost inflation. This would make it less likely that the Fed would continue cutting its key rate. Annual inflation as measured by the central bank’s preferred gauge fell to 2.1 percent in September.
But investors now foresee rate cuts next year as increasingly unlikely. The perceived probability of a rate cut at the Fed’s meeting in January of next year fell Wednesday to just 28 percent, down from 41 percent on Tuesday and from nearly 70 percent a month ago, according to futures prices monitored by CME FedWatch.
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