After Trump's victory, former Fed policymaker Mester predicts fewer rate cuts in the market next year.

• Loretta Mester, a former Fed policymaker, stated on Tuesday that the U.S. Federal Reserve may not carry out as many rate cuts as anticipated next year if President-elect Donald Trump's global tariffs are implemented.
• According to Mester, the market is likely to have fewer cuts next year than was previously assumed or expected in September.
• Speculation about Trump's tariff proposals and their impact on the world economy led markets to reduce their forecasts for rate cuts after his election victory last week.

If President-elect Donald Trump's proposed global tariffs are implemented, the U.S. Federal Reserve may not cut interest rates as many times as anticipated next year, according to former Fed policymaker Loretta Mester.

The Fed's outlook is expected to change under the incoming Republican administration's fiscal plans, and markets may be correct in predicting fewer than the four cuts previously forecast.

The pace of cuts will be influenced by fiscal policy next year, according to her statement during a panel at the annual UBS European Conference in London.

According to Mester, who served as president of the Cleveland Federal Reserve until her retirement earlier this year, her own view is that the market is right and it's unlikely that there will be as many cuts next year as was assumed or expected in September.

Speculation about Trump's tariff proposals and their impact on the world economy led markets to reduce their forecasts for rate cuts after his election victory last week.

Trump promised during his campaign to rekindle a trade war that started in his first term, stating he would impose a 10% to 20% tariff on all U.S. imports and a harsher 60% to 100% rate on Chinese goods. Economists have cautioned that these actions could lead to inflation.

The Fed is projected to make 50 basis point cuts in the first half of 2025, followed by another 25 basis point reduction in the second half, according to Reuters poll median forecasts. This would bring the Fed funds rate to 3% to 3.25% by the end of 2025, slightly below the central bank's median "dot-plot" projection.

Although Mester anticipates that the bank will make fewer than four cuts next year, she believes there is still potential for the bank to cut at its next meeting in December.

Policymakers could anticipate a "first look" at the Trump administration's fiscal proposals' impact on their forecasts, according to Mester. Nevertheless, the full fiscal package's details and its effects on monetary policy are not expected until early next year.

Mester stated that it won't only be tariffs; there will likely be developments on immigration, taxes, and spending as well.

She added, "All of those together are going to have to inform me if the outlook for the U.S. economy has changed."

The implications of Trump's fiscal plans, particularly on tariffs, are causing concern among global policymakers.

Olli Rehn, the Governor of the Bank of Finland and European Central Bank policymaker, stated on Tuesday that the implementation of such levies would have a negative impact on the world economy. However, he emphasized that Europe must be prepared for this possibility.

During the UBS panel, Rehn stated that the substantial import duties in the verbal pipeline could have adverse consequences for the global economy.

"To avoid a trade war, the European Union must be prepared, as it was not in 2018."