By investing.com — The political dust hasn’t even settled since Donald Trump’s decisive victory, but some on Wall Street are already reining in their forecasts for rate cuts, expecting a more cautious Federal Reserve.
Nomura said it now expects the Federal Reserve to cut just once in 2025 following a pause with another 50 basis points of cuts in mid-2026, taking the Fed’s terminal rate to 3.625%, up from a prior forecast of 3.125% as Trump’s proposed tariffs plans are likely to stoke inflation pressures.
The less dovish outlook comes just as the Fed kicks off its two-day meeting, which is expected to culminate in a 25 basis point rate cut on Thursday.
Trump’s economic policies are likely to focus on the tariffs and tax policy, reducing growth and increasing inflation, Nomura estimates. This would likely prompt the Fed into a cautious stance on rate cuts as the central bank may have to balance inflation risks and weaker economic growth.
Some on Wall Street believe it’s too early to assess the outcome from a second Trump Administration.
“[i]t remains to be seen how far he can go with the measures he has proposed during the election campaign,” Scotiabank (TSX:BNS) Economics said.
Over the short-term, however, positive economic momentum is “plausible,” it added, but cautioned that the longer-term outlook is gloomy.
“In the longer term, sharp increases in tariffs and a drop in the number of immigrants could be damaging to economic growth,” Scotiabank Economics said.