If Donald Trump’s victory is clear, it is that the United States will enter a stronger inflationary period than expected, forcing the country’s Federal Reserve to slow the pace of interest rate cuts. NOW, The market estimates that rates will be 4% at the end of 2025, compared to 3.75% estimated at the end of last week..
Tariff policy (which would lead to an increase in the prices of certain products), a trade war with China or immigration control (restricting the access of immigrants and, therefore, less cheap labor which would increase wages of the country) were some of the proposals. of the Republican candidate in his race for the White House, which would once again add pressure on the CPI.
“Longer term, a Trump victory will likely mean a looser regulatory environment, escalating tariffs, and possible attempts to repeal parts of the Inflation Reduction Act (IRA),” says Blair Couper, director of abrdn Investments. To this, Aaron Rock, head of nominal rates at abrdn, adds that “the next challenge is how to combine rhetoric and policy. Trump’s first term offered an uneven panorama in this regard. We hope that tax cuts will soon be implemented for consumers and businesses. a key pillar of Trump’s populist vision. Tariffs could increase over time, which is currently more of a threat than a reality. Either way, it seems very likely that further fiscal expansion is on the way. This doesn’t fit well with Trump’s desire to see the Fed cut rates aggressively.“.
If last week a new rate cut in 2025 had already been erased, the market is once again erasing a new one. Thus, since last Friday, the market has gone from 125 basis points below the current level (5%) at the end of 2025 to 100 basis points. In other words, without taking into account the last drop expected in 2024, In 2025, there would be only three additional rate cuts, totaling 75 basis points.. Thus, interest rates in the United States would be at 4% at the end of next year.
This Thursday, the American organization meets again and it is practically certain that the Fed will further reducethis time 25 basis points, after the drop giant by 50 basis points compared to the previous meeting. This would be the last rate cut this year.
At the start of this year, the market expected US rates to fall by up to 150 basis points this year. Finally, if Thursday’s cut occurred, the reduction in 2024 would be exactly half of what was expected and the Federal Reserve would have lowered rates by 75 basis points.
