The Fed and Powell won't be able to evade discussing Trump indefinitely.

• At his Thursday news conference, Fed Chair Jerome Powell evaded numerous questions from the press corps about President-elect Donald Trump's views.
• During his first term, Trump expressed a negative outlook towards the Powell Fed, despite nominating the Fed chair in 2017. Powell disregarded the criticism at the time.
• The relationship between Trump and Powell may add another complication to the Fed's delicate balance in managing monetary policy.

During his Thursday news conference, Federal Reserve Chair Jerome Powell evaded numerous questions from the press corps, who were attempting to obtain his views on President-elect Donald Trump.

In the future, Fed policymakers, economists, and analysts will have to consider the ambitious economic and political agenda of the firebrand Republican.

During his first term, Trump criticized the Powell Fed, calling policymakers "boneheads" and comparing Powell to a golfer who couldn't putt. Powell, who was nominated by Trump in November 2017 and took office in February, dismissed the criticism then and did so again on Thursday.

Powell stated during a news conference that he would not discuss political matters, but thanked those who asked about the Trump victory and its consequences. He ended the session early, around 3:12 p.m. ET, after a series of politics-focused questions.

The Fed leader will have no choice but to confront the consequences of a Trump presidency.

Trump has threatened mass deportations for undocumented immigrants, which could change the labor market landscape. Additionally, among the anticipated policy initiatives are tax cuts, increased government spending, and tariffs aimed at balancing the global market.

The future of the Trump-Powell relationship is uncertain, as Powell's term as chair ends in February 2026, which may add another layer of complexity to the delicate balance the Fed is trying to maintain with monetary policy.

Differences in policies, politics

Joseph LaVorgna, chief economist at SMBC Nikko Securities, stated that the new administration will bring its own perspective on policy, making communication more challenging and potentially creating a difficult situation.

The Fed may not adopt the same approach as the new administration, which could lead to tension, according to him.

Trump's former chief economist, LaVorgna, may return to Washington in 2025 for another term in the White House.

Like Trump, LaVorgna has been a Fed critic, but for a different reason: he believes the central bank made a mistake by lowering its benchmark interest rate by a quarter percentage point on Thursday. Instead of advocating for immediate action, LaVorgna suggests the Fed should wait until it has a clearer picture of the uncertain economic landscape, including the direction of inflation and unemployment.

Historically, Trump has supported lower interest rates, but this stance could shift if the Fed reduces rates and inflation increases.

"If the outlook becomes more mixed in the future, what if President Trump asked, 'Why are you cutting when things with inflation don't look as solid as they might have before?'"

Some economists believe that Trump's policies may contribute to inflation, even as evidence suggests that the rate of price increases is slowing down towards the Fed's target of 2%. Despite this, some economists have already adjusted their inflation forecasts and growth projections this week, due to the uncertainty surrounding the Trump agenda.

If inflation rises and the forecasts are accurate, the Fed may be forced to respond, potentially by slowing down or halting the rate cuts.

Uncertainty ahead

The Fed's decision to lower rates by another quarter percentage point on Thursday was discussed in Wall Street commentary, despite Powell avoiding any mention of Trump.

According to Joseph Brusuelas, chief economist at RSM, the upcoming year in Federal Reserve policy will be notably intriguing.

Brusuelas predicts that the Fed will cut baseline rates by one percentage point in 2025, which is in line with the Wall Street consensus and the fed funds futures market. However, this outlook is subject to change.

"Brusuelas stated that the forecast is dependent on the economic status quo remaining constant, but with the rise of unconventional economic populism, the forecast may be subject to changes in trade and immigration policies, which could impact employment, the unemployment rate, and wage pressures, ultimately leading to an increase in the price level."

Some economists are concerned that Trump's policies may lead to significant consequences, while others are adopting a more cautious stance due to the president's tendency to engage in saber rattling.

Although economists predicted that heavy tariffs would lead to a significant increase in prices, inflation remained below 3% during Trump's presidency, with the Fed's preferred indicator showing only a slight increase. Biden maintained most of Trump's tariffs and added new ones on electric cars and other goods.

According to Kathy Bostjancic, the next round of tariffs could increase inflation by approximately 0.3%.

"We expect this development to prompt the Fed to moderate the pace of policy easing slightly, but not halt it entirely," she stated. "Our recommendation for significant rate reductions in the coming year would maintain the financial market conditions that lower borrowing costs for consumers and businesses, support the labor market, and sustain economic growth."

The possibility of the Fed acting independently and making policy decisions regardless of Trump's preferences creates a potential conflict.

Trump previously claimed that the president should have a say in monetary policy. However, Fed officials maintain their independence from both fiscal and political considerations, which may become more challenging in the near future.

"Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, stated, "The easy cuts have been made, and maybe December won't be too contentious either. Afterward, I believe the Fed is questioning the same things as investors: to what extent and when will the incoming Trump administration implement its campaign policy proposals?""