If those bets bear out, the end of the Fed’s current rate-cutting campaign would come more than a year sooner and its policy rate would be a full percentage point higher than most Fed policymakers had projected after their initial rate cut in September.
Stronger-than-expected economic data since the September meeting had been progressively resetting market rate expectations for a shallower rate-cut path.
Several Wall Street economists on Wednesday cited those risks as they penciled in fewer Fed rate cuts next year.
The impact of Trump’s policies could play out over years, some analysts cautioned, and it is unclear how fully he will follow through with his pledges.
That view could change, they said, as Trump’s intentions become clearer over the next few months.
With a number of new policies that the Republican leader has embraced designed to boost the economy and halt or even reverse the slowdown in inflation, President-elect Donald Trump’s imminent return to the White House seems to put the Federal Reserve on a slower and shallower path for interest rate cuts.
When US central bankers conclude their two-day policy meeting on Thursday, it is still generally anticipated that they will lower the Fed’s benchmark interest rate by a quarter of a percentage point, to the range of 4point 50 percent to 4point 75 percent.
Although with a little less confidence than before, futures contracts linked to the Fed’s policy rate are also pricing in a rate cut in December as the central bank adjusts borrowing costs to inflation that is now much closer to its 2 percent target and to a cooling labor market.
However, traders now predict that the Fed will only lower its policy rate twice in 2025, bringing it down to the 3 percent to 4 percent range and probably waiting until July to do so. This change could have significant effects on households and businesses wishing to refinance debt or take out new loans.
The Fed’s current rate-cutting campaign would end more than a year sooner and its policy rate would be a full percentage point higher than most Fed policymakers had anticipated following their initial rate cut in September if those bets win out.
Since the meeting in September, market rate expectations had been gradually reset for a shallower rate-cut path due to stronger-than-expected economic data.
Shortly after the final polls closed early on Wednesday, Trump defeated Democratic Vice President Kamala Harris, solidifying that shift in opinion.
Trump ran on promises to revive what he perceives to be a failing economy, and he intends to do so by enacting a crackdown on immigration, lowering taxes, and raising tariffs.
According to economists, those policies are likely to result in a tighter labor market and faster economic growth, which would push prices higher in addition to the higher cost of imports.
As they projected fewer Fed rate cuts in the upcoming year, a number of Wall Street economists mentioned those risks on Wednesday.
Some analysts warned that Trump’s policies could have long-term effects, and it is uncertain how completely he will fulfill his promises.
Oxford Economics’ analysts wrote, “The Fed can continue to cut interest rates into 2026, as the central bank still needs to recalibrate monetary policy to be less restrictive, because the inflationary implications from tariffs and expansionary fiscal policy have been delayed.” The analysts maintained their prediction that the Fed will lower its policy rate to nearly 3 percent by the middle of 2026.
They stated that as Trump’s goals become more apparent over the coming months, that opinion might shift.
