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-

The DFM rose 0.7% yesterday on turnover of AED 650.6 mn. The index is up 1.2% YTD.

In the green: Talabat Holding (+3.5%), Salik (+3.5%) and Dubai Taxi (+2.6%).

In the red: National International Holding Company (-10.0%), Emirates Islamic Bank (-5.4%) and Orascom Construction (-4.2%).

Over on the ADX, the index closed up 0.1% on turnover of AED 1.1 bn. Meanwhile Nasdaq Dubai closed up 0.4%.