US follows Bank of England and cuts rates despite Trump’s inflation fears

Last night, the US Federal Reserve went ahead with an interest rate cut of a quarter of a percentage point despite fears that Donald Trump’s presidency could drive up inflation.

Federal Reserve chief Jerome Powell downplayed questions about the impact of the president-elect’s plans, saying, “We don’t guess, we don’t speculate, and we don’t assume.”

And Powell also allayed fears that Trump might try to oust him. Asked if he would resign if Trump asked him to, he said, “No.”

The move came hours after the Bank of England also cut rates by a quarter point. It was announced a day after Trump won a decisive election victory over Kamala Harris, boosting stock markets but raising fears that inflation could soar again.

The president-elect’s threat to impose 10 percent tariffs on imports from around the world and a 60 percent levy on Chinese goods would create new pressures on prices.

That has led financial markets to reduce bets on how quickly the Federal Reserve will cut rates.

Last night’s rate cut follows a gigantic half-point reduction (the first in four years) in September. Central banks around the world had sharply raised rates as they struggled to reduce inflation.

Now that inflation is going down, they are starting to cut them. In a statement announcing last night’s move, the Federal Reserve said inflation had fallen closer to its 2 percent target but “remains somewhat elevated.”

Trump’s election has raised fears not only of tariff increases but also that, as president, Trump could interfere in the Federal Reserve’s policy decisions.

During his previous term in the White House he publicly criticized Powell when the Federal Reserve raised rates. The latest statement made no mention of Trump’s election victory.

And Powell said it would have no impact on his decisions in the short term but that, like any administration, he could adopt policies that do so, although the details are not yet known. He said nothing to rule out an expected new rate cut next month.

Samuel Tombs, chief US economist at Pantheon Macroeconomics, said: “At this early stage, the likelihood, scale and timing of Trump’s proposed tariffs on imports and tax cuts are too uncertain for the Federal Reserve to pass judgment, even though they pose significant upside risks. to inflation prospects.

“With the Fed’s independence at risk of being undermined during Trump’s term, Powell and other Reserve officials will surely stay as quiet as possible for as long as possible.”

Ryan Detrick, chief market strategist at Carson Group, said: ‘The Fed didn’t change things. The big question now is will they cut again in December? Our best guess is yes, as inflation continues to improve.”