Uncertainty of Trump presidency pushes US Fed to rule out pre-emptive rate actions

To cut, or not to cut is becoming an increasingly difficult question to answer in Trump’s America. Although Trump has only been in the Oval Office for a meager 16 days, his plethora of executive orders, pledges of incoming tariffs, and threats to close economic allies have disrupted the forecasts of economists and policymakers alike. The US Federal Reserve is no different, with San Francisco Fed Head Mary Daly telling the New York Times that any pre-emptive interest rate moves are off the table until the “scope, magnitude and timing” of the new presidency’s actions and their effect on the economy are clearer.

The Fed is focused on seeing the wood from the trees, trying to gauge the combined effect of the new administration’s policies, instead of reacting to each and every move — or a late-night tweet — from the presidency. “If a policy change is going to spur growth, which ultimately pushes down inflation, at the same time that there’s something that picks it up a little bit, then you don’t know what the net effect is going to be until you have more details about the policy,” she explained.

“The easiest way for a policy mistake is to speculate,” she told the American paper of record. The paper only had to look back as far as the last couple of days to justify the Fed’s new approach, with a tariff showdown with Canada and Mexico, along with a looming tariff war with China, and even the EU presenting an impossible-to-predict few months ahead for the country.

For now, the Fed is sticking to its outlook from December, which projected interest rate cuts of half a percentage point in 2025, bringing the target range to 3.75-4%. But Daly emphasized that this could change, depending on how the US economy evolves. “I think we have to have a very open mind about whether fewer or more will be needed,” she said, indicating how inflation and policy shifts could complicate the central bank’s plans and projections.

The Fed has a different approach to Trump this time round, after being quick off the block to preemptively lower rates in three consecutive meetings in 2019 during Trump’s first foray into trade wars. However, the US is in a different place right now, with inflation above the Fed’s 2% target, making businesses and consumers more sensitive to price pressures.

MARKETS THIS MORNING-

Asian markets are mixed in early trading this morning, the Hang Seng is in the red, down 1.6%, and so is the Shanghai, down 0.6%, while the Kospi is up 1.0% and the Nikkei is relatively unchanged.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.5% yesterday on turnover of SAR 6.3 bn. The index is up 3.3% YTD.

In the green: Kingdom (+8.9%), ACIG (+7.3%) and Care (+4.6%).

In the red: Albabtain (-4.0%), Abo Moati (-1.8%) and Alandalus (-1.8%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.5% yesterday on turnover of SAR 72.6 mn. The index is down 0.9% YTD.

In the green: Smile Care (+12.9%), Naas Petrol (+5.1%) and Mulkia (+4.8%).

In the red: TMC (-11.5%), Sama Water (-6.1%) and Aldawliah (-5.1%)

CORPORATE ACTIONS-

#1- RiyadhDevelopment Company’s (Ardco) shareholders greenlit a 31.6% capital increase to SAR 2.3 bn via rights issue, according to a disclosure to Tadawul. The company will issue 56.2 mn new shares to fund the acquisition of two real estate plots in Riyadh from Remat Al-Riyadh Development Company.

#2- Sedco Capital received the green light from the Capital Market Authority for the public offering of its Saudi Freestyle Artificial Intelligence Fund, the authority said in a statement.

#3- Saudi Cement is set to distribute a SAR 229.5 mn dividend payout for 2H 2024, at SAR 1.50 per share, it said in a disclosure to Tadawul. Distributions will be announced at a future date.

#4- Albilad Capital will distribute SAR 469.8 mn in dividends for the Albilad Saudi Sovereign Sukuk ETF for January 2025 at SAR 0.054 per unit, according to a separate disclosure yesterday. Distributions will be executed within 10 days of the announcement.