US Fed Rate Cut Outlook: Could Donald Trump's Return Shape the Fed's Path on Interest Rates?

On November 7, the U.S. Federal Reserve cut its benchmark interest rate by 25 basis points (bps), bringing it down to a range of 4.50 - 4.75%. While this move was in line with expectations, markets found Fed Chair Jerome Powell’s cautious tone about future rate decisions less reassuring. Experts forecast further rate cuts through 2026, influenced by key economic factors like growth, inflation, and potential impacts of a renewed Trump presidency.

The Fed’s Rate-Cut Trajectory

Earlier in September, the Fed reduced rates by 50 bps—the first cut in four years—signaling confidence that inflation was approaching its 2% target. By November, policymakers noted that while inflation was stabilizing, the labor market was easing. Many analysts now expect the Fed to continue gradually lowering rates until they reach a target range of 2.75% to 3% by 2026.

Could Trump’s Return Influence Fed Policy?

Donald Trump’s relationship with the Fed has been rocky. During his first term, he openly criticized Powell’s policies and explored options for his removal. Trump’s policies—such as aggressive tariffs, tax cuts, and increased government spending—are seen by some as inflationary, potentially leading to higher interest rates. Experts suggest that a return of these policies could slow the Fed’s anticipated rate-cut pace, prioritizing stability over further easing.

While Trump’s influence over the Fed may be limited, his ability to appoint board members offers a potential route to impact. Powell’s current term as chair expires in May 2026, and Trump could appoint loyalists to steer policy, though legal protections make it challenging to remove Powell prematurely.

What Lies Ahead for US Interest Rates?

Economic experts believe Powell will continue monitoring inflation and economic growth to guide the Fed’s rate trajectory. While Trump has expressed support for lower interest rates, analysts remain cautious. Hitesh Jain of YES Securities points out that Trump’s policies, such as higher import tariffs, could drive inflation upward. If the economy shows strength, the Fed may only pursue modest cuts, capping total rate reductions under 100 bps for 2025.

Impact on RBI Policy in India

Closer to home, analysts predict the Reserve Bank of India (RBI) will likely hold rates steady in its December meeting due to ongoing inflation concerns. With food prices expected to stabilize, experts such as Akhil Mittal of Tata Asset Management anticipate a small rate-cut window in early 2025, potentially in February. However, any rate adjustments will likely remain moderate, with a focus on maintaining financial stability.

In summary, the U.S. Fed’s rate path remains uncertain, especially with Trump’s potential return adding a layer of political complexity. As global markets react, the RBI’s future moves may be influenced by U.S. policy changes, inflation, and domestic growth trajectories, setting the stage for careful navigation through 2025.

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