When could Fed pause rate cuts? TD says January
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WHEN COULD FED PAUSE RATE CUTS? TD SAYS JANUARY
Republican Donald Trump's presidential victory last week has led traders to adjust for policies that could lead to higher prices. That has also led to questions on whether the Federal Reserve is likely to cut rates fewer times than previously expected.
Fed Chair Jerome Powell last week said the central bank would begin estimating the impact on its twin goals of stable inflation and maximum employment once the new administration's proposals take shape.
Interest rate strategists at TD see the new government, along with stronger U.S. economic data, as likely to lead the Fed to pause from January through June. That would follow a likely 25 basis point reduction in December.
"The Trump victory will likely put upward pressure on inflation due to tariff and immigration policy. While some investors may expect the Fed to begin to hike rates in such a scenario, we would expect the Fed to pause rate cuts as they assess the impact on inflation and growth," analysts led by Gennadiy Goldberg said in a report.
The outlook for rates in the second half of 2025 is then likely to depend on the rate of growth, with TD seeing changes to tariffs and immigration as likely to create a "stagflationary drag on the economy" and slow growth momentum.
"This will likely allow them to resume cuts as the inflationary impact from tariffs would have been seen as contained. We then expect the Fed to cut rates by 25bp/meeting until they reach neutral at 3%," TD said.
(Karen Brettell)
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