Fed can keep the interest at the next week

At the World Economic Forum in Davos (Switzerland) on January 23, US President Donald Trump announced it would require the US Federal Reserve (Fed) to “reduce interest rates immediately”. In addition, the world should act the same, according to him.

The speech stated in the time the Fed will conduct a two -day policy meeting next week. AP It is said that most analysts are predicting the US central bank to keep the basic interest rate at 4.25-4.5%.

The reason is that the global economic situation is uncertain, inflation is still high. Along with that, last month, the Fed lowered the prediction of the ability to cut interest rates 4 times to 2 times in 2025, after taking down 1 percentage point last year.

At the last meeting on December 17-18, the Fed still maintained the view that inflation will continue to decrease steadily to 2%, though slow. Meanwhile, the unemployment rate is low, growth and the economy still grow.

Personal price index (PCE), the Fed tool used to measure inflation targets, nearly 2% on the basis of three and six months. They expect to achieve stable progress in the next few months but need more data to confirm.

“We consider Fed’s January meeting mainly,” Bank of America’s analysts said. With a lot of instability, this bank expects the Fed to cut interest rates in March or continue to stay.

Theo ReutersMr. Trump is making Fed’s work more complicated. In the early days of the new term, the president tightened the immigration regulations, with the intention to strengthen the expulsion of people who illegally cross the border. He also threatened to impose import taxes in Canada, Mexico and China from the following month.

The challenge for Fed President Jerome Powell and colleagues will be to determine the level of impact of these instability on current monetary policy and reasonable way to make promising forecasts.

If you go too far, it can be considered politicized, according to Vincent Reinhart, the economy at BNY Investments. Conversely, if the Fed does not provide enough information, the public misunderstood what is likely to happen.

Vincent Reinhart said that any forecast is related to political factors, which is difficult for independent agencies like Fed. “You cannot change the monetary policy based on the assumption that there will be tariffs or tax laws this year. Currently, there are many variables that are changing,” he pointed out.

Mr. Trump’s policies are implemented quickly or slowly and in the coming months, it is likely to affect the final stage of Fed’s fight against inflation.

During the last month’s meeting, Fed officials acknowledged the potential effects from Trump’s trade, immigration and other policies. They are a bit slower to assume growth, higher unemployment rates and less progress in reducing inflation in 2025.

Bradley Saunders, North American economist of Capital Economics, predicted that the Fed continues to cut interest rates at meetings in March and June. Not sure, due to immigration policies reducing the growth of labor force and tariffs leading to inflation rising again.

“We predict a blend policy, causing slow growth and inflation from the new Trump administration,” Saunders said. He is inclined to the Fed reducing interest rates depending on the time of implementing the President’s policy.