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Fed may keep interest rates unchanged next week

LA (according to VnExpress) January 27, 2025 6:00

Although Mr. Trump said he would ask the Fed to immediately cut interest rates, experts predict the US Federal Reserve will not act at its meeting next week.

Mặt tiền trụ sở Fed tại Washington DC, Mỹ, ngày 14/6/2022. Ảnh: Reuters
The facade of the Fed headquarters in Washington DC, USA, June 14, 2022. Photo: REUTERS

At the World Economic Forum in Davos (Switzerland) on January 23, US President Donald Trump announced that he would ask the US Federal Reserve (Fed) to "immediately reduce interest rates". In addition, the world should also do the same, according to him.

The speech comes as the Fed holds a two-day policy meeting next week. AP reports that most analysts expect the US central bank to keep its benchmark interest rate unchanged at 4.25% to 4.5%.

The reason is that the global economic situation is uncertain, inflation remains high. Along with that, last month, the Fed reduced its forecast for the possibility of cutting interest rates from 4 times to 2 times in 2025, after cutting 1 percentage point last year.

At its most recent meeting on December 17-18, the Fed maintained its view that inflation would continue to fall steadily toward 2%, albeit slowly. Meanwhile, unemployment is low, growth and the economy is still growing.

The personal consumption expenditures (PCE) price index, the Fed's measure of inflation, has been running close to 2 percent on a three- and six-month basis. They expect steady progress in the coming months but need more data to confirm.

“We view the January Fed meeting as largely a stepping stone,” Bank of America analysts said. Given the uncertainty, the bank expects the Fed to either cut rates in March or keep them on hold.

According toReuters, Mr. Trump is making the Fed’s job more complicated. In the early days of his new term, the President has tightened immigration regulations, intending to step up deportations of illegal border crossers. He has also threatened to impose import tariffs on Canada, Mexico and China starting next month.

The challenge for Fed Chairman Jerome Powell and his colleagues will be to determine how much of an impact these uncertainties have on current monetary policy and how to appropriately forecast the outlook.

If it goes too far, it could be seen as politicizing, according to Vincent Reinhart, chief economist at BNY Investments. Conversely, if the Fed doesn’t provide enough information, the public gets the wrong idea about what’s likely to happen.

Vincent Reinhart said that any forecasting is now politically driven, which is difficult for an independent agency like the Fed. "You can't change monetary policy based on the assumption that there will be tariffs or tax legislation this year. There are so many variables that are changing right now," he pointed out.

How quickly and in what direction Mr Trump’s policies unfold in the coming months is likely to influence the final stages of the Fed’s fight against inflation.

At last month’s meeting, Fed officials acknowledged the potential impact of Mr. Trump’s trade, immigration and other policies, and they favored a slightly slower growth, higher unemployment and less progress on reducing inflation in 2025.

Bradley Saunders, North America economist at Capital Economics, expects the Fed to cut rates again at its March and June meetings. However, he noted that any further easing is uncertain, given immigration policies that reduce labor force growth and tariffs that lead to a rebound in inflation.

“We expect a mixed policy, slow growth and inflation from the new Trump administration,” Saunders said, adding that he is leaning toward a slower pace of Fed rate cuts depending on the timing of the president’s policy.

LA (according to VnExpress)
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Fed may keep interest rates unchanged next week