By Investing.com — The Federal Reserve may slow its expected pace of rate cuts in 2025 due to potential global tariffs under President-elect Donald Trump’s incoming administration, according to former Fed official Loretta Mester, CNBC reported.
Speaking at the UBS European Conference in London, Mester suggested that the Fed could reduce its planned rate cuts, aligning with market predictions.
“The market is right,” she remarked, “they’re probably not going to have as many cuts next year as was assumed or expected in September,” CNBC said.
Following Trump’s election, markets have recalibrated their expectations, now anticipating fewer rate cuts due to the potential inflationary impact of Trump’s proposed tariffs.
The CNBC report highlights that Trump has pledged to reinstate sweeping tariffs, including a 10-20% levy on all U.S. imports, with a severe 60-100% rate specifically targeting Chinese goods.
Analysts and economists are concerned such measures could boost inflationary pressures, impacting the Fed’s rate trajectory.
CNBC said Mester noted that December could see a preliminary assessment of how the Trump administration’s fiscal policies might affect the Fed’s forecast.
However, the publication added that Mester foresees the full fiscal package and its implications for monetary policy unfolding in early 2025.
UBS also hosted European Central Bank policymaker Olli Rehn, who emphasized the potential global fallout from a renewed U.S.-China trade war, calling it “detrimental” and urging the European Union to be better prepared this time, unlike during the 2018 trade tensions.
“A trade war is the last thing we need,” he said, underscoring broader concerns among policymakers about Trump’s impact on global economic stability.