US Fed's caution on rate cuts could cause friction with Trump

WASHINGTON, Dec 20 (AFP): Donald Trump's imminent return to the White House and uncertainty about his policy proposals has begun weighing on the US Federal Reserve, raising concerns of a reckoning between the central bank and the president-elect.
Fed chair Jerome Powell acknowledged on Wednesday that Trump's economic platform, which includes the threat of major tariff hikes, the extension of tax cuts, and mass deportation, had been a consideration when members of the rate-setting committee met to consider the number of interest rate cuts they expect next year.
"Some did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation," Powell said after the Fed announced it was cutting rates by a quarter point and signaled just two cuts in 2025.
"We don't know what'll be tariffed from what countries, for how long, and what size," he said. "We don't know whether there will be retaliatory tariffs, we don't know what the transmission of any of that will be into consumer prices."
Previously, Powell had refused to comment on how the Fed was thinking about the potential impact of the next administration's economic policies.
Trump has continued to insist that, "properly used," tariffs would be positive for the US economy.
"Our country right now loses to everybody," he told reporters at his Florida residence earlier this week. "Tariffs will make our country rich."
Given the uncertainty over Trump's plans, the decision by many policymakers to pencil so few cuts may have been a signal that they are willing to keep rates higher if the new administration puts forward policies that are inflationary, Steve Englander, head of G10 FX Research at Standard Chartered bank, told AFP.
"There are reasons not to be that pessimistic, and yet they chose to be that pessimistic," he said. "So it's hard to sort of avoid the signal that maybe they wanted to send a message."