Investing.com -- The Federal Reserve’s rate cut by 25 basis points was accompanied by a higher inflation projection, on which the Macquarie analysts say with the hawkish tone was influenced not just by economic data but also by potential policy shifts under Donald Trump’s administration.
“It must be that its policymakers are collectively also reflecting on Trump's policy agenda items before they are put into effect, even if they won't admit to it,” analysts wrote.
Jerome Powell referred to the decision as a "close call," reflecting internal uncertainty about inflation risks. The Fed's Summary of Economic Projections (SEP) marked a 0.4% and 0.3% jump in headline and core inflation for 2025, respectively.
Observers speculate the Fed is preemptively considering Trump’s tariff-driven policy agenda, despite Powell's reluctance to directly link monetary policy to future policy scenarios.
But Trump’s tariff policies are steering global central banks in the opposite direction with major foreign central banks are expected to respond with a dovish approach to counteract disinflationary pressures triggered by U.S. trade actions.
“It has kept the Japan's BoJ away from the prospect of a policy rate hike, either today or in January. Even the BoE is seeing the wisdom of staying open to Bank Rate cuts because of Trump's tariffs. Foreign CBs are already 'fighting' Trump's tariffs with currency debasement,” analyst added.
The contrasting policies have driven the U.S. dollar higher, tightening margins for American exporters. Meanwhile, foreign central banks are seen protecting competitiveness by maintaining weaker currencies.
“If there is a theme here, it is that while Trump's US import tariff agenda is making the Fed 'hawkish', it is affecting other CBs in the opposite way — toward dovishness.”